Raamdeo proposes asset-light strategy for infra boost

With barely two week left for Arun Jaitley to unveil the Modi Government’s last full Budget on February 1, 2018, speculation is rife as to how the Union Finance Minister would balance fiscal prudence with the need for massive investment across key sectors of the economy and the call for some urgent attention on the hinterland. As suspense grows, we invited some top names from Dalal Street to play finance minister and present their own budget proposals on ETMarkets.com

Raamdeo Agrawal, Co-Founder & Joint Managing Director of Motilal Oswal Financial Services, plays FM in this installment and unveils what he calls a David-like sharp strategy for Union Budget 2018. Read on...

The two major objectives of the government’s budgetary exercise are mobilisation of resources and their effective utilization. So, apart from the routine budget proposals, I would propose a couple of longer-term measures to achieve these two objectives –


1. Banking licence on tap; an
2. Quantum growth in infrastructure spending.

• Banking licence on tap

Entry of many new banks will deepen the penetration of banking in the country and bring healthy competition in the banking sector. It will also ensure proper mobilization of the expected US$ 10 trillion of savings over the next 10 years. These savings can then be channelized to part-finance the infrastructure build-up discussed in the next point.

• Quantum growth in infrastructure spending

India’s FY18 GDP is estimated to be US$ 2.6 trillion, with last 5-year CAGR (compound annual growth rate) of 7 per cent. I would lay down a GDP target of US$ 5 trillion by FY25 i.e. 7-year CAGR of 10 per cent. This 3 percentage point increase in growth rate is possible with a quantum growth in infrastructure spending.

• GOI is asset-rich, but revenue poor

Government of India is sitting on a huge pile of monetizable assets. At the same time, it is revenue poor; it runs a revenue and fiscal deficit, and is short of resources to meet its basic infrastructure needs.

Just one of the government’s multiple asset forms is its shareholding in several listed public sector companies. This is currently valued at a massive Rs 24 lakh crores. In this case, I would go by the principle, “The government has no business to be in business.” I would follow an asset-light strategy for infrastructure build-up. I would budget to gradually divest these holdings, and use the proceeds as government equity. This can then be leveraged using local and foreign debt to create a massive resource pool for infrastructure development.

For example, let’s say we sell Rs 1 lakh crore worth of shares in some public sector companies, such that post the disinvestment, government holding does not fall below 51 per cent. At 2:1 debt-equity, the resource pool works out to Rs 3 lakh crores, which is about 2 per cent of India’s current GDP.

If we spend the entire Rs 3 lakh crore in one year (over and above the current level of capital expenditure), it will not only create high-quality infrastructure, but also give a huge stimulus to the economy. Corporate activity will boom and job creation will be massive, leading to a surge in direct and indirect taxes. The above strategy can be easily sustained for the next 5-7 years, to achieve the target of US$ 5 trillion GDP by FY25.

Thus, the Government of India is not constrained by resources. We need a David-like sharp strategy and execution to defeat the Goliath of poverty, and wipe away tears from the face of the poor.