Don't see rise in interest rates for infra sector: Feedback

Feedback Infra is upbeat on infrastructure sector. Co-Chairman RS Ramasubramaniam is of the view that RBI's monetary policy is positive for the macro economy, which in turn, will be beneficial for the infrastructure sector. Also, he also does not see a rise in the interest rates for the infrastructure sector as overall costs of funds for banks will not be impacted by the rate hike.

He also lauded the decision-making of several authorities for revival of the sector. "Seventeen of the 24 fuel supply agreements (FSAs) have been signed in the past two weeks, which is fantastic, Ramasubramaniam says. Also, the Cabinet Committee on Investment (CCI) has been going a good job for clearing project bottlenecks and all of these will reflect in about six months," he says in an interview to CNBC-TV18. Also read: No revival till 2014 polls; rate hike to hit infra: Gammon Below is the edited transcript of his interview to CNBC-TV18. Q: What is your view on the RBI monetary policy and how would you rate it? A: Raghuram Rajan stated that between the impact of the reduction of the Marginal Standing Facility (MSF) interest rate and the hike in the repo rate and doesn’t take that this should impact the overall cost of fund of banks lending to infrastructure. I tend to agree with that. Chairman of the Indian Banks Association had also made a stated that they would prefer to wait and watch in terms of looking at whether the cost of funds for banks are actually going to go up; what will be the liquidity pressures and whether they actually intend increasing the cost of debt for the infrastructure sector as a whole. I don't think there should actually be an increase in the cost of funds for the infrastructure sector. There was a study by the RBI last year on the impact of a hike or a decrease in the interest rate for the infrastructure sector. They studied the decrease in investment in the sector in 2013 as compared to 2012 and came up with this interesting finding. It is not so much the interest rate hike or cut that impact it as the larger forces that play out in the infrastructure sector. So how is the credit policy for infrastructure sector? It actually bodes good for the long-term, given the inevitable tapering off of the Fed Quantitative Easing (QE) three. What is good for the macro economy will certainly be good for the infrastructure sector. It is good for the overall infrastructure sector. There are other factors playing out which actually bode good for the infrastructure sector in the coming few months. I am actually looking at the six month outlook for the infrastructure sector. The current bottlenecks for the power sector, there were 24 projects that went under the project monitoring growth set up under the cabinet committee on investment (CCI). Out of 24 projects that were put up for FSA, 17 of those have been signed in the last two weeks. Three more have to be signed in the next 10 days. We are waiting for some announcement on the highway developer concession agreements that have gone up and are between the finance ministry and the planning commission. If we can get word of that, it will bode well. If the bottlenecking of infrastructure projects is announced in the next six months and the project monitoring committee under CCI is doing a good job of that; it is good for the sector. We are waiting for about Rs 1.7 lakh crore projects awards to be announced before March 2013 in power, in highways and expressways, in Ultra Mega Power Projects (UMPPs), in the airport five OMTs that are on the corner. Overall, the credit policy, I don't think is negative for this sector. Whether it is good or not will be determined by forces beyond the credit policy which is really the debottlenecking of the sector as well as the award of contracts which are scheduled till March 2013. So net-net, positive on the policy and subsequent action that the government is taking. _PAGEBREAK_ Q: There is an expectation that the CCI approvals which have been undergone, which will start showing fruits in the second half of the fiscal. Do you concur with that view? What exactly the CCI has approved and which one would possibly show the maximum amount of fruit possibly and by when? A: Two sectors will show fruits, one is energy which is very critical for the rest of the economy and the highway sector. In energy sector, out of 24 projects, which went up to CCI for FSAs, 17 have been signed. That is fantastic progress. The results of that should show up in the next six months. Out of the balance, seven which are pending with CCI three will get signed within the next 10 days. That leaves only four where there are some other land and environmental clearance, things with the coal ministry that may take some time. Energy, I am quite positive will show some results in the next six months thanks to the actions of the PNG and CCI. On the highways front, the projects that are pending with the CCI actually have to do with land and environmental clearance; not so much with the resetting of the concession agreement. So, I am not so sanguine that the highways sector is going to show improvements in the next three-four months as the issues are very important and I don't see much action there. Energy; I am much more optimistic that the FSAs that have been signed by CCI will show progress in the next six months.