Tag Archives: Arun Jaitley

All eyes north!

Finance Minister Arun Jaitley aggregated infrastructure under a single umbrella and drew attention to its importance during his Budget address stating, ‘Our country needs massive investments estimated to be in excess of Rs 50 lakh crore in infrastructure to increase growth of GDP, connect and integrate the nation with a network of roads, airports, railways, ports and inland waterways, and provide good quality services to our people.’

The budgetary expenditure on infrastructure for 2018-19 is being enhanced by Rs 1 lakh crore to Rs 5.97 lakh crore against an estimated expenditure of Rs 4.94 lakh crore in 2017-18.

The Prime Minister’s PRAGATI initiative has been established to fast-track projects worth Rs 9.46 lakh crore. The Budget has provided for plans to complete over 9,000 km of National Highways in 2017-18 – this will mean 25 km per day of construction which is more conservative than what Nitin Gadkari told us in an interview last month.

The Railways’ capex has been pegged at Rs 148,528 crore; 4,000 km of the rail network has been targetted for electrification, 600 stations are being developed, and elevators are being provided to all stations with over 25,000 footfalls.

As for smart cities, 99 cities have been selected with an outlay of Rs 2.04 lakh crore, of which projects worth Rs 2,350 crore have been completed and projects worth Rs 20,852 crore are under progress. State-level plans of Rs 77,640 crore for 500 cities have been approved. Water supply contracts for 494 projects worth Rs 19,428 crore and sewerage work contracts for 272 projects costing Rs 12,429 crore have been awarded.

Expectedly, rural India, too, drew funds in gigantic proportions with a collective amount of Rs 14.34 lakh crore. The Namami Gange programme is on track with 187 projects sanctioned for river surface cleaning, rural sanitation and other interventions at Rs 16,713 crore; of this, 47 projects have been completed and the rest are at various stages of execution. Significantly, all 4,465 villages on the banks of the river have been declared open defecation-free.

The seriousness of envisioning an inclusive society seems apparent in the Budget, which attempts to put ‘its money where its mouth is’. The government has identified 115 aspirational districts for improvement in social services like health, education, nutrition, skill upgrade, financial inclusion and infrastructure, like irrigation, rural electrification, potable drinking water and access to toilets, at an accelerated pace and in a time-bound manner. Thus, infrastructure continues to remain the driver of the growth that India needs to sustain its demographic dividend.

However, some concerns remained unaddressed.
1. Private capital has remained elusive as the government has made efforts to revive the mojo in the economy. Besides reducing the tax rate for companies with turnover less than Rs 250 crore from 30 per cent to 25 per cent, there is no impetus provided. Section 32 AC and (1A) provided a deduction of 15 per cent of cost of new machinery investment made by a company from its profits subject to tax, where the the investment was more than Rs 25 crore. This facility has not been extended beyond assessment year commencing April 1, 2018. Even though this may not have elicited response in the past since 2015 when section 32AC was introduced, the time is ripe for more companies to use this benefit as the economy has begun responding positively now.

2. Also, costs are rising: Raw material like sand, which was earlier available at Rs 3,500 per truckload in 2014 cost Rs 35,000 per truckload in 2017; while a cement bag, which cost Rs 270, is being sold at Rs 330 per bag upwards. Labour costs in road construction have increased almost 50 per cent in the past three years.

A 20-22 per cent hike in iron ore prices announced by state-run miner NMDC in early January has pressed the cost accelerator further. Steel prices have also gone up from the earlier Rs 34,000 per tonne to Rs 47,000 per tonne. In cost index data issued last June, the index for labour cost was at 185, compared to 110.2 in April 2014! (Labour accounts for around 8-10 per cent of road construction cost.)

Further, the Budget has eased tax rates for companies with a turnover under Rs 250 crore to 25 per cent (from 30 per cent earlier). But given the cost pressure in a scenario of slow uptake on demand, there should be more emphasis on quick disbursement of funds under public projects. Public-sector units must step up their expansion plans. The disinvestment target of Rs 80,000 crore set for this year will ensure that more public-sector units come in for dilution, improving efficiency in the process.

In light of the above, the Finance Minister has kept up the momentum from last year-s narrative and continued the push for infrastructure. The results are bound to begin to emerge as projects begin to be executed. Standards of accountability have been stepped up – assurance, indeed, that the green shoots we see emerging will propel us northward.

Revival Mantra: Go Rural

The ´leap´ of the year turned out to be more of a ´hop, skip and jump´. Cautiousness prevailed as FM Arun Jaitley reined in the fiscal deficit to 3.5 per cent of GDP and stood his ground. The month began with the ´Make in India´ extravaganza which helped the state administration revisit the MOUs signed by industrialists with various BJP-ruled states. This was followed by the Rail Budget, the Economic Survey and the Union Budget. The mood of the nation is showing the strain. The corporate sector is in severe pain. Profitability of business has shrunk by Rs 20,000 crore in the public sector while it has shrunk by over Rs 30,000 crore in the private sector (as per a survey of 3,000 companies that excluded banks, finance and broking houses). The proportion of corporate debt owed by stressed companies, defined as those whose earnings are insufficient to cover their interest obligations, has increased to 41 per cent in December 2015, compared to 35 per cent in December 2014.

Yet, the GDP is estimated to grow by 7-7.75 per cent on the back of the three demand drivers: the infusion of the 7th Pay Commission payout (estimated Rs 1.02 lakh crore), the OROP payout (Rs 10,000 crore) and the public spending envisaged under the Union Budget. This is further backed by a higher probability of a normal monsoon although the benefit of the oil price is not likely to be as much as was available last year.

Public spending is clearly the engine of revival. In the current scenario with the private sector badly bruised, capital is shy and only government-funded, large-scale infra projects can revive the economic cycle. The FM has proposed an outlay of Rs 2,21,728 crore for infrastructure. Of this, the Rail Budget proposes to spend Rs 1,21,000 crore. The budget to electrify 2,000 km next year has witnessed an increase by 50 per cent. It has also targeted commissioning 2,500 km of broad gauge lines at 7 km/ day, almost 30 per cent higher than last year. LIC has agreed to invest Rs. 1.5 lakh crore to fund railway projects. In the roads sector, which has green-lit the infra revival, the Budget has accorded a higher allocation of Rs 97,000 crore and including an accelerated Pradhan Mantri Gram SadakYojana (PMGSY) with an outlay of Rs 27,000 crore. As per the roads minister (see cover story on page 51), Maharashtra itself will see a spending of Rs 68,000 crore in the coming nine months. Rural development is the mantra of this year´s budget as Rs 87,765 crore has been provided for irrigation, electrification and welfare. Coal production has been the highest ever at 550 mt while imports by India are sliding. Last fiscal, India spent Rs 1 lakh crore in importing coal. We have already saved Rs 22,000 crore this fiscal on this account. Coal India has been directed to double production from the present level to 1,000 mt by 2019-20. Most of this increase would happen via the surface mining segment and, to achieve this, the volume of overburden to be removed would shoot up from 1,000 million cu m to 2,500 million cu m. This will result in greater utilisation of existing deployed equipment while placing huge demands on the need to invest in additional mining equipment. Smart cities, too, would see RFPs of Rs 4,000 crore by the end of this calendar year.

The change in the complexion of state budgets like those of Bihar, Uttar Pradesh, Madhya Pradesh and Gujarat, among others, are great proof that federal empowerment is working and will be the true opportunity in the years ahead. All states are laying great emphasis on infrastructure investment, education, power and youth employment. The 14th Finance Commission´s largesse to states will see an amount of Rs 2,87,000 crore, which going by the composition of the spending will see a greater thrust on infrastructure and social welfare. All considered, the Budget supports the creation of an ecosystem for the revival of rural demand for overall economic revival.