A key expectation from the Budget is for the government to increase capital infusion in the public sector banks to strengthen their balance sheets, which in turn will allow them to increase their credit outreach.
Ajay Sawhney and Kaif Ahmed
With a few days left in the unveiling of the Budget, the corporate sector is eager as to what’s in store after a sweeping parliamentary mandate this time. The newly-appointed finance minister, Nirmala Sitharaman, is supposed to present the full year Budget and the industry awaits a flavour of economic policies that can be expected for next five years.
Infrastructure is a key focus area for any developing economy and given that India’s growth rate is expected to hover around 7.5% for some time, it is imperative that the Budget provides the requisite impetus to the infrastructure sector to ensure growth. In the interim budget, the previous government retained its focus on populist measures instead of industry-specific concerns, but now with the elections behind us, the government will have to ensure that fuel for growth has to be the agenda of the Budget.
The ministry of power has already sent its key proposals for the sector. Its proposal for removal of priority sector lending limit for renewable energy projects, tie-up between SECI and public sector banks and revision of GST rates will have to be factored in. The power sector is heavily relying on private sector investment and the government will have to consider allocating public funds in the sector, especially for allied areas such as transmission and power banking, without which the energy sector may not achieve the desired goals.
The transportation sector which had received an allocation of Rs 4.56 lakh-crore in the interim budget, is slated to grow at an annual rate of 5.9%, and the allocation itself may not be adequate to support the projected growth. Although there was an escalation in the allocation from FY19, the aviation sector in particular lost out with its allocation being reduced to almost half. The Budget will have to balance the allocation within the transportations sector and consider supporting long-term policies which ease out the requirements of the transportation sector.
Roads have seen significant growth during last few years owing to efforts like introduction of new models of concession, improvised land acquisition process and introduction of other innovative strategies — however, similar efforts have been lacking in the other areas in the transportation sector and key learnings from the roads will have to be deployed in other modes of transportation.
After all privatisation is not and cannot be the solution to every problem and the Budget will have to contribute its bit by removing policy paralysis, augmenting government grants and addressing financing issues.
Among others, inadequate financing support is the biggest issue right now crippling the infrastructure sector, predominantly on account of public sector banks facing an NPA crisis. The NBFCs, which until recently were stepping in and covering up, are now facing serious challenges on account of lack of funds and a tightening RBI regime.
Given the long-term financial requirement of infrastructure projects, it is unlikely that the NBFCs will be upbeat about their continuing credit exposure without the support of the public sector banks.
Therefore, a key expectation from the Budget is for the government to increase capital infusion in the public sector banks to strengthen their balance sheets, which in turn will allow them to increase their credit outreach. A stressed asset situation is likely to continue and it would only be wise that the Budget factors in the learnings to strengthen the financial support system and not choke it further to hamper the growth of infrastructure sector.
The infrastructure sector is the second largest employer after agriculture sector. However, it does not enjoy the same position when it comes to budgetary allocations. Reports available suggest that India needs almost Rs 50 lakh-crore expenditure on infrastructure by 2022 to continue on the growth path and this expenditure is not only for the new projects, but a sizeable portion is also for unfinished projects such as smart cities, metro projects and bullet trains. Given that positive measures in the infrastructure sector will favourably impact in reducing the unemployment rates, the Budget should be tailored to accommodate the requirements of infrastructure sector.
With a promise, in NDAs election manifesto, to spend $1.44 trillion for the infrastructure sector along with promises such as tax cuts for middle class and cash handouts to farmers, there is an uphill task for the government to manage the public finances in a prudent manner. Any effort to favourably manage the fiscal deficit will yield results if the Budget adequately addresses the above mentioned concerns —it will be a boost to the infrastructure sector needs.Ajay Sawhney is partner and Kaif Ahmed is principal associate at Cyril Amarchand Mangaldas. Views are personal