We are getting there

NITI Aayog has put forth a plan to turn India’s economy to reach a size of $7.5 trillion, (though targeting $10 trillion) or more than three times of what it is today, at $2 trillion. Implementation of GST, tax reform and ease of doing business (read the Cover Story) are all parts of the building blocks of this plan. And, they all seem to be moving on course so far. India is on the throes of a massive change. The change is not only limited to economy and industry but is also being instituted in social behaviour, and most importantly, in changing mindsets. Just look at what all is happening: Swachh Bharat, Digital India, Smart Cities, AMRUT, Affordable Housing, E-governance, E-Procurement, Make in India, Direct Benefit Transfer, Demonetisation, black money campaign, renewable energy thrust, UDAN, etc, and other social campaigns such as the Ujwala Yojna, Beti Bachao Beti Padhao and so on. This is a lot of work in so short a time and work is in progress.

The recently announced affordable housing scheme and Pradhan Mantri Awas Yojana or PMAY have seen the launch of over 350 projects to build about 2 lakh houses with a private sector commitment of investing Rs 38,000 crore. The cost of constructing these units will be in the range of Rs 15 lakh to Rs 30 lakh with an average construction cost of Rs 18 lakh per house.

Under PMAY-U, central assistance is provided to each beneficiary in the range of Rs 1 lakh to Rs 2.35 lakh. Of the 2 lakh houses, over 1 lakh will be constructed in Maharashtra, followed by 41,921 houses in the NCR; 28,465 in Gujarat; 7,037 in Karnataka; and 6,055 in Uttar Pradesh; among others. Cement prices have already reached pre-demonetisation levels on the back of demand coming from infrastructure and will firm further due to these housing projects.

GST is on track and is likely to cause another disruption for a quarter, but will soon bring great prosperity. Distressed assets of around $6.8 trillion sitting on books of the banks would also heave a sigh of relief as firms and funds like KKR, Lone Star, Kotak and Edelweiss are planning to mobilise their resurrection. It is estimated by experts that the capital required for the next four to five years to resolve distressed situations is about Rs 30,000 crore to Rs 40,000 crore, and it is already being provided for by NBFCs, PEs and international funds.

The PM completes three years on May 26 this month and a lot is on his plate. Fortunately, for us, his plans have accorded priority to infrastructure and while public spending is leading the way, the private sector is preparing to jump in the fray too. Recently, at a private charity function, I bumped into Sajjan Jindal, Chairman of JSW Group, and when I posed him a casual question on whether the private sector was ready to invest into the India story: “We are getting there,” he quipped.

When will the good times roll in?

India is on a path of deep-rooted reform. Many initiatives have been triggered that will see fruition this year: Implementation of RERA (with a deadline of May 17), appointment of a Real-Estate Regulator, credit ratings of municipal corporations, issuance of municipal bonds by cities, introduction of GST, and much more. While these shifts do cause disruption in the regular flow of commerce and require systemic adjustment, India can afford this exercise as growth numbers are robust enough to absorb the shocks of change.

Now, however, all eyes are on public spending, which can bring the mojo back. An amount of Rs 3.96 lakh crore (against Rs 3.48 lakh crore the previous year) has been budgeted for infrastructure with Rs 2.41 lakh crore for transport alone. A separate amount has been provided for metro projects to the tune of Rs 18,000 crore and, similarly, among other schemes like Swachh Bharat, Bharatnet, Deen Dayal Jyoti Yojana, etc.

The government´s record last year gives us a reason to believe that spending has gathered momentum as the chains of bureaucracy are being delinked through transparency and accountability. However, it is important that the urgency shown in preponing the dates for the Budget should crystallise into an early disbursal of funds for the projects.

A favourable poll result for the ruling party will accelerate government programmes. Renewable power prices, including solar and wind, seem to have ushered in hope for improvement in production costs for India´s manufacturing sector. Labour costs have risen geometrically for all industries. Also, with rural electrification being implemented on a war footing and Bharatnet expected to make high-speed broadband on a fibre-optic network available by 2017-18 in more than 1.5 lakh gram panchayats, the aspirations of the population will explode countrywide. Lag in power availability stunted our progress; but states are resurrecting their power finances with UDAY.

Further, housing, which was the topic of our cover story last issue, is likely to gallop as it has now been given ´infrastructure´ status and the Central Government is providing interest subvention for ´affordable housing´. ´With an additional interest subvention of 3-odd per cent offered by states, housing demand can skyrocket,´ stated the Union Minister of Urban Development and Housing, while launching the new logo of CW at a conference organised by PHD Chamber in Delhi recently. What´s more, the smart cities mission is quietly making progress with 30 of the 60 identified cities having organised SPVs and appointed CEOs. Tenders are being issued and over 90 projects are underway. To discuss smart solutions that can be executed in the Indian context across cities, Smart Cities Council India is organising the 4th SM@RT CITIES SUMMIT at Pragati Maidan, New Delhi, from March 15-17. For details, visit www.SmartCitiesSummit.in.

Indeed, the vote is for development all the way. And if all political parties realise this, we are likely to see development as a common agenda with each vying to outdo each other. Then, the good times would have truly begun.

Set for an infra-run

Data suggests that demonetisation has hit the pace of announcement of new investment proposals during the quarter-ended December 2016

The Union Budget has set the tone for 2017 by accelerating the growth agenda. The allocation for infrastructure at Rs 3.96 lakh crore, over Rs 3.49 lakh crore last year, will fuel the sector. Of the increase of Rs 47,000 crore, transport itself will consume Rs 24,000 crore.

The Railway Budget has been the largest-ever at Rs 1.31 lakh crore – an 8.26 per cent increase over the Rs 1.21 lakh crore allocated in 2016-17. Railway lines of 3,500 km will be commissioned in 2017-18 while at least 25 stations are expected to be awarded during 2017-18 for station redevelopment. Allocation for highways has been increased from Rs 57,976 crore in 2016-17 to Rs 64,900 crore in 2017-18. Around 2,000 km of coastal connectivity roads have been identified for construction and development.

The dark horse in the transport sector, the Pradhan Mantri Gram Sadak Yojana (PMGSY) has gathered pace. Last year, when I asked Minister Nitin Gadkari at a CII meet, why the PMGSY programme, which had tremendous potential, was not going anywhere – he responded that it did not fall under his ministry but that the government was working on an impetus for it.

The pace of construction of PMGSY roads has accelerated to reach 133 km per day in 2016-17, as against an average of 73 km during the period 2011-2014. And, the Budget has continued to provide Rs 19,000 crore in 2017-18 for this scheme. Together with the contribution of States, an amount of Rs 27,000 crore will be spent on PMGSY in 2017-18.

The other big bang boost has been for the housing sector. National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18. Affordable housing has been given the ´infrastructure´ status, which will enable these projects to avail benefits including interest subvention. Further, a target to complete 1 crore houses by 2019 has been set for the homeless and those living in kutcha houses.

Allocation for Pradhan Mantri Awas Yojana (PMAY) has been raised from Rs 20,000 crore in 2016-17 to Rs 29,000 crore in 2017-18. Owing to these reforms, there is a likelihood of an ample availability of affordable housing in the next three years.

Among other infrastructure projects, the Metro projects will see the introduction of a Metro Policy and higher allocation of Rs 18,000 crore, against Rs 10,000 crore in the previous year. AMRUT and the Smart Cities mission will continue to move forward with an allocation of Rs 9,000 crore, against Rs 7,296 crore, as 60 selected cities gear up to issue tenders for city development.

The Namami Gange project has been allocated an increase of Rs 100 crore from Rs 2,150 crore to Rs 2,250 crore. And, Sagarmala has received an enhanced allocation of Rs 150 crore from Rs 450 to 600 crore. The Swachh Bharat campaign is being vigorously run and the allocation has risen to Rs 16,000 crore. Armed with the demonetisation swell in the banks, the finance minister had some head room to hold back the temptation of hiking the service tax in view of the forthcoming Goods and Service Tax (GST), which was a big relief. Further, though the large corporate sector did not get the tax reduction, the FM reduced taxes by 5 per cent for the MSMEs, which have an annual turnover of Rs 50 crore or less, thereby benefitting nearly 64 lakh companies.

Issues that need further attention by the ministry include implementation of the projects. Even the irrigation projects, which found mention in his last year´s Budget speech where 23 of the 99 projects would require to be completed by March 2017, are likely to miss the deadline. As per CMIE, new investment proposals worth Rs 1.25 lakh crore were observed during the quarter ended December 2016. This is low compared to the average Rs 2.36 lakh crore worth of new investments seen per quarter in the preceding nine quarters of the Modi Government. Data suggests that demonetisation has hit the pace of announcement of new investment proposals during the quarter-ended December 2016. Two hundred and twenty seven new investment proposals worth Rs 81,800 crore were announced during this quarter till November 8, 2016. In comparison, only 177 investment proposals worth Rs 43,700 crore were made between November 9 and December 31, 2016.

As for stalled projects, though the current government was to invigorate the economy by debottlenecking and accelerating these, the data points to the contrary. CMIE capex figures show that year-end stalled project figures for 2016 are at their highest levels since December 1995. The total value of stalled projects has reached Rs 11.70 lakh crore in the December quarter, accounting for 12.11 per cent of the total projects under implementation. Among the prime reasons for which the projects are stalled, ´obstacles in environment clearances´ contribute to 20 per cent while ´lack of promoter interest´ seems to be a growing trend over ´land acquisition issues´.

However, the absolute value of new project announcements shows that 2016 ranks second best among the last five years. This means that but for demonetisation, the economy was set for a run. Even if we examine the performance for the road sector, the contracts awarded and the length of roads constructed in the highway sector has been way behind claims of the road ministry.

The status of construction awarded and completed during September 2016 vis-a-vis targets set forth for 2016-17 are as follows:
However, the stage is set for a revival of the tempo. The Dispute Resolution Bill, release of funds for cases stuck in arbitration, reduction in interest rates, resolution of some severely stuck road projects, consolidation of some road assets and the infusion of some foreign capital, which has come to the rescue for some developers – all has signaled the dawn of the good times by Diwali 2016. And now, with the demonetisation impact easing up, the delayed dawn of good times is on the horizon again.

Smart cities: Designed for growth

June 25 will be remembered as a red-letter day in the history of urban India as three mission programmes with a huge spend were launched, all backed by India’s dynamic Prime Minister Narendra Modi: Smart Cities, AMRUT and ‘Housing for All’. The depth of these programmes can be gauged from the detailing in the guidelines and the extent of the detailed planning of the conduct of their launch. After the PM set the tone by defining a smart city as one ‘where the administration thinks two steps ahead of the needs of its citizens’, he urged the assembled urban development state ministers, mayors and municipal commissioners from across India to aspire to leave behind a legacy by which their contribution to building India’s model urban programmes would be recognised. Union Minister for Urban Development Venkaiah Naidu conducted the workshop for two full days where good work done by municipalities was presented and lauded and guidelines to the three missions were explained.
In four months, states will receive proposals from their cities that want to qualify as projects. The states will then choose from among the selected cities from the list, and propose them as their entry to the Smart Cities Mission. It is likely that by March 2016, 20 cities will qualify for funding under the mission. These cities will receive Rs 200 crore in the first year and Rs 100 crore during the next four years. The cities will have to observe certain criteria, which include proposals for retrofitting with 500 acre or redevelopment with 50 acre or greenfield with 250 acre plus a pan-city smart solution initiative that has received the support of citizen groups. Further, they need to ensure that 10 per cent of power is sourced from renewables in case of greenfield development or redevelopment; 80 per cent of the buildings have to be energy-efficient; and 15 per cent of total housing provided needs to fall under affordable housing. The Urban Local Bodies (ULBs) have to provide financial statements for the past two years and demonstrate improvements as per the Swachh Bharat Mission and revenue generations from citizens through provision of services. All this is bound to gear ULBs up for accountability and good governance. As all procurements will take place through e-procurement measures, corruption will be minimised.
The Smart Cities Mission along with AMRUT, Housing for All, Digital India, Swachh Bharat and HRIDAY will see a total spend of Rs 4 lakh crore over the next five years. All these missions are integrated and interrelated. The essential change in these schemes over the past has been that the Centre has passed down the responsibilities of city improvement to the state. Introducing a challenge has added an element of competition. Once the ‘smarter’ states win funding for their cities, private sector money a.k.a. builders will flow in, leaving some in the lurch. Once money starts taking sides, city leaders will compete. This opens up opportunities for PPP as nearly 50 per cent of the money for the cities will have to be generated by attracting the interest of private developers. The Housing for All’ scheme will accelerate ‘in-situ’ slum redevelopment projects as it offers an incentive of Rs 1 lakh per 30 sq m flat built to developers. Housing loans of up to Rs 6 lakh for a 15-year period at an interest rate of only 6.5 per cent is being issued to economically weaker segments of society to acquire a home.
The affordable housing segment is likely to continue to be the only beacon of light for the debt-ridden realty sector. On a similar note, the roads sector has been green lit and the PM is likely to trigger a wave in July. Government expenditure is slated to rise with a major bump in September to come from the additional amount of Rs 70,000 crore set aside for infrastructure. Last month, this column had wished away the dark clouds of despair (‘Bure din gaye’). By September, we are likely to see the first crack of dawn of ‘Acche din’!