Budget promises rapid construction of roads, ports; to weed out delays and corruption

Infrastructure development is poised to take a giant leap as the Budget promises rapid construction of highways, ports, ultra mega power plants, airports and renewable energy projects with the help of massive public funding made possible by delaying fiscal belt-tightening.

Analysts expect foreign direct investment, which has been lukewarm towards Indian infrastructure, to flow into the sector. The optimism stems from the belief that the promised transparent auction and absence of uncertainty over clearances will calm overseas investors, who often say it is difficult to compete with local firms that are adept at navigating bottlenecks and roadblocks.

With projects worth Rs 8.7 lakh crore stalled due to difficulties in clearances, litigation, poor performance of contractors or financial difficulties, Finance Minister Arun Jaitley said the major slippage in the past decade has been on the infrastructure front.

"There is a pressing need to increase public investment….with private investment in infrastructure via the public-private partnership (PPP) model still weak, public investment needs to step in, to catalyse investment," he said.

The minister focused on steps to fund infrastructure and rule out delays and corruption – steps which analysts said can lure foreign companies to invest in Indian projects. A key initiative is the "plug-and-play" model, in which projects will be offered after securing all clearances. Jaitley said he expects Rs 1 lakh crore investment in five ultra mega power projects (UMPP). India Ratings said domestic companies may not participate enthusiastically in these projects due to weak lending and equity sentiment in the sector. "However, this could boost the foreign interest in the sector which will bring in the required equity and more technological inputs for timely implementation and enable efficient operation of these projects," the agency said.

Shubhranshu Patnaik, senior director with Deloitte, said land acquisition for giant projects may be an issue. "Committing to bid out five UMPPs is creditable but it isn’t clear how soon this can be done, given the need to acquire land for the plant and mines," he said. The Budget proposals include a massive expansion and acceleration of road-building by completing 1 lakh km of highways already under construction and another 1 lakh km of new projects, which will boost demand for inputs, including cement and steel.

Jaitley also promised tax-free bonds for various infrastructure projects and the setting up of the National Investment and Infrastructure Fund, which will have an annual flow of Rs 20,000 crore to it. "This will enable the trust to raise debt and, in turn, invest as equity, in infrastructure finance companies such as IRFC and NHB. These companies can then leverage this extra equity, manifold," Jaitley said. Further, PSUs will raise capital expenditure by Rs 80,444 crore to Rs 3,17,889 crore in 2015-16. "In fact, all told, investment in infrastructure will go up by Rs 70,000 crore in 2015-16, over 2014-15 from Centre’s funds and resources of CPSEs (central public sector enterprises)," the minister said. Jaitley also said the government plans to introduce a Public Contracts ( Resolution of Disputes) Bill to resolve disputes, which have delayed many projects.

Analysts and industry executives said that the steps announced in the Budget will boost infrastructure investment and improve business sentiment, even as they added that they will keenly watch how effectively the promised measures are implemented.