The infrastructure sector expects continued thrust from the government towards revival of investment cycle in the form of further increase in budgetary allocations towards infrastructure sector with focus on roads, railways and urban infrastructure.
Dedicated allocations for specified large infrastructure projects announced such as Bullet trains, Bharat Mala, Sagar Mala, Smart Cities, inland waterways development, etc. can also be made to expedite these projects. Further, budgetary allocation towards NHAI can be increased keeping in view the increased capital outlay on national highway development.
To revive private sector interest in taking up new projects, independent regulator for specific infrastructure sub-sectors can be created which can focus on resolution of bottlenecks and further improving the regulatory environment.
Further to promote private sector investment in infrastructure, incentives like extension of tax holiday for infrastructure projects, relief on applicability of MAT during tax holiday, coverage of projects involving upgrading existing infrastructure under 80IA or 35-AD, and clarification on pending taxation issues with respect to InvITs can be provided.
The infrastructure sector is also looking at further steps to improve long term funding availability for the infrastructure sector. In this regard, higher allocation towards National Investment and Infrastructure Fund (NIIF) is expected. Also, the deduction under section 80CCF for infrastructure bonds which was discontinued can be reintroduced for select infrastructure companies/finance companies.
The total budgetary allocations (including PBFF, CRF and GBS) to fund the ambitious new highway development programme is estimated at Rs. 3,43,045 crore over FY2019-FY2022. Therefore, starting this budget, the allocations to road ministry are expected to increase substantially.
In order to support the new programme, allocation for FY2019 is expected to be in the range of Rs. 80,000-85,000 crore to MoRTH as against Rs. 64,900 crore for FY2018. Further, NHAI market borrowings (IEBR) are estimated to be in the range of Rs. 60,000-65,000 crore to support the new programme.
Based on announcement in February 2016 budget, a new rating scale is devised for infrastructure projects which is a comment on Expected Loss (EL) from the underlying credit as against probability of default based ratings currently which does not reflect some of the inherent strengths of infra projects.
An announcement on the timelines for adoption of the new rating scale for infra projects is expected. The last budget also made an announcement on mechanism to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts.
However, there has been no update on this yet. Setting up of PPP Project Review Committee and the Infrastructure PPP Adjudication Tribunal for re-negotiating concessions if there is evidence of distress in projects (not because of aggressive assumptions/irrational bids) which is likely to result in default.
Some measures are also expected to improve the long-term fund availability to the sector. Majority of infrastructure financing is currently supported by banking sector. Corporate and infrastructure sectors put together account for less than 30% of bond issuances. Appetite for long-term and papers rated below AA category is low.
Deepening of bond markets is required to support long-term infrastructure financing especially given the twin challenges faced by commercial banks - asset-liability management and increasing share of stressed assets. Relaxation of rating threshold (lower investment grade) could encourage domestic insurance companies and pension funds to invest in bond issuances from infrastructure sector.
(The writer is Vice President and Sector Head - Corporate ratings, ICRA Limited)