Budget 2012: Can India's infrastructure dream takeoff?

This is the government's great Indian infrastructure dream. But the ground reality is a rude awakening. With a slowing economy, high interest rates and more importantly delayed decision making, infra projects and infra companies face an uncertain future.

As Pranab Mukherjee gets ready to present Budget 2012 the message is clear - jump start the investment cycle, focus on accelerating infrastructure spending and break the policy logjam.

But does the government have the political capital to deliver on the infra promise?

Vinayak Chatterjee, Chairman of the CII Task Force on Regulatory Framework and Infrastructure and who also founded Feedback Infrastructure gives his views to CNBC-TV18.

Below is an edited transcript of their comments on CNBC-TV18. Watch the accompanying videos for more.

Q: If I look at the recommendations that have been sent in to the government from CII in terms of what it ought to do on infrastructure. This could read like the same list of recommendations five years ago, six years ago and even 12 months ago and we had this same discussion 12 months ago sitting at the CII headquarters. Not much has changed has it?

Chatterjee: Some things have changed. You have got infra NBFC's now, Rajiv is there and so is L&T and so is SREI. So you got infra NBFC's, you got infrastructure bonds, You have got the FII limit and you have got the IIFCL doing a deep dive on take out financing. So you have got a few things. I wouldn't be totally negative but may I add a perspective on the Union Budget because very recently in Delhi among the think tanks and the discussions on policy and infrastructure, people have been increasingly saying what is the relevance of the Union Budget to infrastructure?

So I am actually just going to leave for all of us on the panel some statistics - one, if you add up the total spends on infra in the last Union Budget it was 16% of the total outlets. Roughly about Rs 1.73 lakh crore on the total budget size of Rs 11 lakh core. So 16% of the Union Budget in a sense gets devolved to infra. Now people may say 16% is neither here nor there but more importantly the Budget as you know is split between planned and non-planned.

The government can do very little about planned expenditure salaries etc but on non-planned, the share of infra is a whopping 48% which means half of the government's discretionary spend goes to infra. You started the USD 1,000 million or USD 1 trillion, remember the USD 500 billion target if you break it down to rupees lakh crore per annum, the planning commission 11th plan figure is Rs 4.5 lakh crore of which last year was Rs 1.73 crore. So, out of the India dream 38% in one way or the other gets funded by the Union Budget. So I just want to demolish the hypothesis that the Union Budget is not irrelevant.

Q: This year you are talking about what you see as the triple whammy as the infrastructure business is concerned. You call it the 'triple whammy of distress.' Why do you say that?

Chatterjee: It's very simple. Everybody knows about double whammy but in infrastructure we do a few things differently, so we call it triple whammy. The first of the triple whammy is the declining order books. Across the construction development sector, this year we have found very slow, negligible additions to order book or in majority of cases an actual dip in the order book position. So it shows the context of new project development.

Triple whammy number two, relates to breaking the cash cycle. Whether in advances from new orders or raising billings from reaching milestones on projects which are under execution, which have been delayed or disbursements from banks or the crash of the stock market, from all accounts the cash cycle has been broken and that's one of the reasons for high leverage debts, etc.

Triple whammy number three is the combination of these two, including inflation and rising commodity prices is actually a drop in profitability. So you have got this huge triple whammy hitting infrastructure companies which has resulted in a lot of the woes that you see.

Q: Why do you worry about the impact of the Supreme Court's order as far as the 2G case is concerned? Is it the first come first serve issue that you are worried about?

Chatterjee: The government is always distracted. But in the middle of those distractions we are looking for some positive signals. On power, the government has a huge challenge in the Budget itself because one of the key issues that the FM has to address is this demand for import duty on imported equipment for power plants and that too from a particular country.

Q: Can you say which country it is?

Chatterjee: It starts with C. There are two industry lobbies at work also because power producers say give us the right to shop for the best anywhere in the world.

Q: The domestic equipment makers also have views?

Chatterjee: Not just equipment makers, day before yesterday I saw Praful Patel arguing on TV.

Q: He is batting for his own constituency.

Chatterjee: He is batting for BHEL and others. The Maira Committee has recommended a 14% import duty. The other is what do you do to address Rs 1,45,000 crore of accumulated losses of the state discounts?

Q: So what's your gut telling you - an import duty hike?

Chatterjee: You are asking me a tough question. I would address it halfway.

Q: Halfway?

Chatterjee: I am not saying seven but I would do some measures that would give a sense of comfort to Indian domestic manufacturers to say we recognise your right to participate on a genuinely level playing field.