Interim Budget unlikely to have sops for infra: Expert

Published on Mon, Feb 09, 2009 at 11:35 | Updated at Fri, Feb 13, 2009 at 11:24 | Source : CNBC-TV18

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Vinayak Chatterjee, Chairman of Feedback Ventures, said he has no major expectations for the infrastructure sector from the interim Budget but added that repayment terms for realty companies could be eased.

"The main problem in India is the lack of speedy implementation of the fiscal package," Chatterjee said.

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Here is a verbatim transcript of the exclusive interview with Vinayak Chatterjee on CNBC-TV18. Also watch the accompanying video.

Q: What are your expectations from the interim budget this month. Do you see anything for the infrastructure sector?

A: I think it will be a pro-rata business as usual budget with the necessary extensions to the different sectors for which allocations have already been made in the last few years. So I have no great expectations for the infrastructure sector. But the important point of the interim budget is that while all budgets are about new and fresh outlays, I think it would be important to ask the government to tell us what actually happened to the outlays made in the last two-three years on infrastructure because the informal news we have is that large amount of funds have been lapsing across different programmes from Bharat Nirman to JURM (Jahawarlal Urban Renewal Mission) to National Highways etc. So, the more interesting question is whether the government will actually come up with an outcome report and tell the nation what is happening to the outlays that were budgeted in the last two-three years and how much is lapsing because of bureaucratic and other delays.

Q: Candidly one-and-a-half months ahead of the elections do you think they will come out with some kind of outcome or outlay detail like that and where specifically to your mind have the greatest lapses being infra spent?

A: Lapses have been across both sectors but I agree with you that it would be embarrassing actually for the government, two months before the elections to come and say that we have had major lapses. Bharat Nirman for one has had major lapses across its various heads, three out of the five certainly. I think the National Highway programme is too well documented for me to comment on similarly in JURM, I am not sure the targets are being reached. So sector after sector the problem is not about fiscal outlays, the problem is about implementation on the ground and that is where the government needs to complete.

Q: To scratch this point a little deeper: speaking about the last two-three years what last two stimulus packages – fiscal package I and fiscal package II where the market got excited by two of the announcements. Do you think they have little hope of implementation if such a big pending backlog already?

A: The important thing is the fiscal stimulus package one; I think the two biggest announcements that matter frankly were this Rs 10,000 crore to be raised by IIFCL (The India Infrastructure Finance Co Ltd) and that provided a refinance and the second stimulus package said that another Rs 30,000 could be raised in the next 18 months after seeing the way Rs 10,000 was seen. I think the second one to my mind is far too long-term for us to take that in any degree of seriousness for the immediate. So the real issue is that the first Rs 10,000 crore, IIFCL was supposed to finish its bond raising exercise by the 31st March. There I understand that it is well on its way of meeting its target of Rs 10,000 crore.

But from the point of view of the market, the point of view of private sector infrastructure companies, the real issue outstanding is still in what form nature in shape is the refinance going to be given – (1) is it going to be given for both ongoing and new projects? The buzz is that is likely to be weighted in favour of new projects in which case a huge number of projects in the ground, the promoter companies will not get the benefit of refinance (2) how much of the loans of the commercial bank will this refinance? Will it refinance 100%-70% or 30% and (3) at what rate of interest will it provide the refinance to the commercial banks or the commercial lenders because if it provides refinance at 8.5-9% then the market expects that these commercial lenders will pass on that money at rates close to 12-12.5%.

So from the first stimulus package these are the unanswered implementation questions and so far as stimulus package II is concerned, I think the next Rs 30,000 crore we can discuss six months down the line.

Q: Are you saying that because the kind of money that is been aimed at almost leapfrogging the current projects and going into fresh projects. We are probably going to hit a bad air pocket in terms of the projects that are on ground but not getting completed because they just don’t have enough cash?

A: The point is correct. We have been making this point to the government from September last year onwards saying that it’s always nice to talk about new projects and fresh investments but as a nation you always neglect things that we have already embarked on. So what about the close to Rs 3,00,000 crore of projects on the ground today. Infrastructure projects have a life of three-four years on the implementation cycle so it would be foolish on the part of the government to only focus on announcing a slue of new projects and refinancing for them and completely ignoring this. The market is affected by what happens to the existing projects and investors sentiment and promoters’ sentiment is deeply influenced in terms of what happens to ongoing projects vis-à-vis their interest in bidding for fresh BOT (Build, Operate and Transfer) projects. So this point is of significant importance. So we want answers of these questions on nitty-gritty of the first Rs 10,000. How is it going to be implemented?

Q: There has been some expectation that this time round there might be some sector specific packages which the government may work with of course real estate could be one of those segments which a lot of people fell did not get deserved treatment in the fiscal stimulus package II. Do you think there could be anything specific in the interim budget at this sector?

A: I suppose so, but I do not think they will be in the nature of any tax sops. I think there will be announcements that will make it easier for the real estate firms to rollover the repayment of debts, accumulated interest to provide them greater relief vis-à-vis the lending system. But I do not think there is going to be any tax breaks in terms of fresh infusion of funds. So I am betting on the fact that they make conditions little easier for promoters in the real estate space to take a little more time to repay their outstanding loans. The other point I want to make is that, while announcing the first stimulus package the government has gone on record saying that the Planning Commission within a month or two weeks would announce a list of 20-30 projects which would be speeded up for public expenditure. I mean three months down the line you haven’t seen any list of that nature at all.

Q: The point on real estate that you raised – actually these are the kind of nitty-gritty which does not get discussed in the Budget. Even in the past few which have been full scale budget we have never gotten down to such details. What do you think this budget is going to be about? More or less statement of intense saying, “if am voted back into power I will spend this much, this much on these many projects?”

A: My expectation is that on Vote on Account of Budget there is also very little policy element that goes into it is; its mode of financial book keeping exercise which says that for the next six months or so these are the pattern of pro-rata expenditure. Surely, embedded in the pattern, is some strong political messages. But at this point of time I do not see any great political message coming through because the task of implementation is so huge on the ground that it makes sense to announce new policy measures every time when we still have unanswered questions regarding first stimulus package.

Q: An issue where some eyebrows have been raised of late - the awarding of three out of four ultra mega power projects to one private player. Do you think its safe practice to go with something like that or are you a bit concerned about that as well?

A: I would answer that question as an individual: at different forum both in various chambers as well as representations to the government, I have argued that like everything else in the infrastructure sector we should have a cap of not more than 25% asset building is given to one industrial house in a moving space of five years – that’s a personal point of view and I am reasonably passionate in holding on to that point of view so I do not think more than 25% of asset creation. So I do not want to restrict it to ultra mega; if there is 1,00,000 megawatts of private projects given out to the private sector then any one promoter of industrial house or foreign investor should not get more than 25% of the assets offered in a moving space of five years.