One of the biggest issues being faced by the construction industry was the availability of finance and liquidity February 2020
The Union Budget announced on Saturday mentioned Rs 100 trillion to be invested on infrastructure over the next five years. As part of the National Infrastructure Pipeline, Rs 103 trillion worth projects will be focused on, and more than 6,500 projects across sectors are to be classified as per their size and stage of development.
A National Logistics Policy to be released soon. Roles of the Union Government, State Governments and key regulators are yet to be clarified, and a single window e-logistics market is to be created. This plus, the focus will be on generation of employment, skills and making MSMEs competitive.
The National Skill Development Agency is to give a special thrust to infrastructure-focused skill development opportunities.
Also, project preparation facility for infrastructure projects has been proposed. This will involve young engineers, management graduates and economists from Universities.
Furthermore, infrastructure agencies of the government will involve youth-power in start-ups. And, Rs 1.7 trillion has been proposed for transport infrastructure in 2020-21.
CW highlights industry reaction to the Budget 2020 Outcome for the Infrastructure sector.
Kshitish Nadgauda, Senior Vice President, Managing Director-Asia, Louis Berger, says, “Continued planned investment in transportation infrastructure including roads and highways, aviation, urban metro rail and high speed intercity rail is a welcome step. The nation’s economic development and growth is heavily dependent on robust infrastructure, and it is thus commendable to see the sustained impetus through announcements made today by the Finance Minister Nirmala Sitharaman.” He adds, “However, special attention needs to be paid to both design and construction to boost safety and quality, building world-class transportation facilities. This would also bring the overall life-cycle costs down for these projects. Along the 9,000 km economic corridors, new townships/nodes should be developed to create economic growth centres that would stem the flow into existing major cities.”
Nadgauda also adds that of the total 1.7 trillion allocation for the transport infrastructure, there needs to be a significant outlay for urban transportation infrastructure covering public transportation facilities (metro rail, light rail, trams, urban roadway interchanges, bus transport). Adequate focus should also be on improving the quality of life of daily commuters in urban centers by providing safe and efficient feeder networks and enhanced pedestrian facilities including wide sidewalks, landscaping and public conveniences. “Overall, the budget is a step towards a strong, healthy and prosperous India having a positive long-term impact on the economy.”
On his part, Dr Vivek G Mendonsa, Director-Sales, LYNX_Lawrence & Mayo, says, “The budget 2020 is a holistic and integrated budget, focused on promoting the ‘ease of living’ for a common man and ‘ease of doing business’ for SMEs, MSME’s and corporate. With a clear thrust on projects that work keeping sustainability and optimum use of resources in mind, the budget outlines plans to strengthen infrastructure relevant for renewable energy, transport, IT and agriculture, and allied industries. Further, a plan to offer employment opportunities to India's young engineers, management graduates, and economists, in construction, operation & maintenance of infrastructure through the 'Project Preparation Facility’, and the mandate for urban local bodies will provide internships to engineers for one year at district and state level, the budget displays a long term vision to make India a youth-led economy. The proposal of 100 per cent tax concession to sovereign wealth funds on investment in infra projects, budgetary allocations of Rs 220 billion earmarked for the power and renewable energy sector and allocations of Rs 44 billion for clean air in cities with a population of over one million, expansion of the National gas grid from 16,200 km to 27,000 km, concessional tax rate of 15 per cent to power generation companies, and government initiatives to forge global partnerships for environment, are impactful steps in the direction of building a robust infrastructure for sustainable energy resources.” He adds, “Effective and integrated digital network, is another visionary step to making India a robust digital economy. Focusing on transport, with the development of highways, waterways, and air-routes, especially the Krishi Udaan and Krishi Rail for agro produce transportation using cold storage, and enhanced connectivity of tribal and remote Northeastern states, are some of the impactful initiatives announced. All of these initiatives showcase the government’s commitment to driving an integrated, sustainable, and humane approach to economic growth, that will have long term impact on the wealth and well-being of generations to come.”
Elias George, Partner and National Head, Infrastructure Government, and Healthcare, KPMG in India, says, “Improving project planning and project preparation are vital measures for ensuring not just the completion of infra projects in time and on cost, but also for enabling their long term physical and financial sustainability. Hence one of the most impactful proposals in the budget is the announcement of a Project Preparation Facility involving young engineers, management graduates and economists. It is hoped that this facility will also enable the adoption of an Environmental, Social and Governance (ESG) approach to the creation of infrastructure projects.” He adds, “Another welcome and long awaited announcement is the proposal to roll out a ‘Clean Air’ initiative in cities with the population of over 1 million people, in quest of the government’s larger “Ease of Living” goal.” He also mentions, “Measures announced to improve access of farm products to markets by incentivizing the creation of warehouses on PPP models, the Kisan rail program and the national seamless air cargo cold supply chain, in the form of Krishi Udaan for perishables, will confer the twin benefits of improving farmers’ income, while also enabling better consumer choice.” Given India’s critical need to ensure equitable availability of water to all, and to conserve water resources, George is certain that the renewed focus and enlarged resource flows on the Jal Jivan mission is timely, with its special emphasis on 100 water stressed districts. “Following on the success of the Direct Benefit Transfer Scheme, the next big thing is the digital delivery of public services through digital governance. Given India’s ubiquity of cell phone use and our adaptiveness to new technology, this will be a transformational move to improve ease of living particularly for the disadvantaged sections.
George further mentions a path-breaking initiative in the infrastructure space. “The budgetary announcement regarding the corporatisation and listing of ports with a view to freeing up public capital, as well as for improving operational efficiencies.”
Manish Aggarwal, Partner and Head, ‘Infrastructure M&A, and Special Situations Group, KPMG in India, says, “Budget 2020 reiterates Government’s commitment to infrastructure investments. Limited fiscal space of Government meant muted allocation growth from budget, however, focus is on mobilizing third party capital - equity infusion of INR 22,000 Crore in IIFCL and a proposed NIIF floated NBFC, exemption to sovereign wealth funds from capital gains from infra investments, removal of Dividend Distribution Tax and a lower tax scheme for power generation companies. Creation of ‘Project Preparation Facility’ may address concerns around quality of project reports & involvement of young professionals around this aspect a welcome step.”
However, Budget side-steps controversial yet critical investment enablers for infrastructure, as listed by Aggarwal:
• Long pending arbitration claims against GoI bodies - creating high level stress in EPC and Infra players and institutionalising a time-bound dispute resolution framework.
• A revitalised and balanced PPP architecture
• Creation of long term development financial institution for infrastructure financing.
Aggarwal adds, “The power sector hoped to see a privatisation focused distribution reform scheme, which is a miss, but hopefully may see light of the day as a part of Electricity Act amendments. Overall, the Budget stopped short of being transformational for this important driver of economic growth.
Shubham Jain, Group Head & Senior Vice President, Corporate Ratings, ICRA, shares, “The capital outlay for roads, railways, and metro projects have been budgeted to increase marginally in 2020-21 BE over the 2019-20 RE. Though there has been some increase in the budgetary allocations towards roads and railways, the increase in overall capital outlay has remained significantly lower when compared to the requirement highlighted in the NIP.” On the positive side, he says, “Capital outlay towards some key schemes related to the infrastructure like AMRUT, Jal Jeevan Mission, and PMKSY have been projected to increase significantly in 2020-21 BE over 2019-20 RE. The capital outlay towards PMGSY is projected to increase by 41 per cent to Rs 111.27 billion; AMRUT and Smart Cities Mission (Urban Rejuvenation) by 40 per cent to Rs 137.50 billion; Jal Jeevan Mission by 15 per cent to Rs 115 billion; and Pradhan Mantri Awas Yojana (PMAY) by 15 per cent to Rs 275 billion in comparison to 2019-20 RE. Overall, the outlay towards the above mentioned schemes is 24 per cent higher when compared to the 2019-20 RE; however, when compared to 2019-20 BE the increase is modest at 7 per cent.
Jain also says, “Availability of long-term infrastructure financing has been a challenge given the problems faced by commercial banks - asset-liability mismatch and increasing share of stressed assets. To improve the financing availability for the infrastructure sector given the significant increase in investment required as per the recently announced National Infrastructure Pipeline (NIP), the budget has made provision of Rs 220 billion as equity infusion in IIFCL and subsidiary of NIIF. This is planned to be leveraged by these entities to provide about Rs 1 trillion financing to infrastructure sector. He adds that the budget has also made tax exemptions for Sovereign Wealth Fund in respect of investments made in Infrastructure before March 31, 2024. This can support long term capital inflows into the sector through routes like NIIF, InvITs and is also positive for the sector.
On his part, Amit Gossain, Co-Chairman, CII National Committee on Urban Development & Smart Cities and Managing Director, KONE Elevator India, says, “The Union Budget 2020-21 announced by the Finance Minister presents a strong focus on the betterment of rural and infrastructure-related developments. We welcome the moves proposed by the government especially on the infrastructure side. The allocation of Rs 103 trillion to boost infrastructure and the development of 100 more airports to receive support and development. The government continues its consistent approach towards affordable housing and the deduction of Rs 150,000 will be extended to loan sanction by one more year. The Affordable tax holiday is a good thing which is now extended till March 2021. For real estate, either industry status or liquidity should have been given. It is important to revive the real estate industry for economic development. Income tax which has been reduced for individuals will result in more disposable income so consumption will increase.”