The Stage is Set

March 2010

The Indian growth story got a timely media boost with the budget mania on television, as the government got its platform to vocalise and showcase the India shining story on the tube. What is clearly a positive factor is that infrastructure has become a clean economic model with known devils and credible assumptions. Now when an infrastructure project is cited, calculations are more credible than ever before. There are glitches too but they are by now more recognisable and can be factored in. India’s push towards infrastructure therefore with 46 per cent of the planned expenditure against 30 per cent previously is a welcome move. Pronabda has budgeted 3 per cent of the GDP for infrastructure at Rs 1.73 lakh crore but the hidden item is the push towards infrastructure in rural areas which nearly account for a further Rs 60,000 crore taking the total infra spending closer to 4 per cent of GDP. With the fiscal deficit of 6.8 per cent currently it was not possible to enhance infra spending any more as the spend of 4 per cent is grossly inadequate to keep up the growth momentum. Fiscal consolidation steps to tighten the deficit at 5.5 per cent will give the FM more headroom as we go along.

Power is a clear favourite after roads in the current run up. An important development for the road sector is that the resale of imported machinery for road construction projects is allowed on payment of import duty at depreciated value and it is clarified that importers are free to relocate such machinery to other eligible road projects. Increase in MAT from 15 per cent to 18 per cent could impact the financial viability and interest in public private partnership (PPP) infrastructure projects, thereby reducing the tax holiday benefits made available to infrastructure companies. Reforms on coal and super critical technology will help reduce costs for power generation.

Fiscal deficit containment was a known objective and hence a marginal excise hike was expected. This will be passed on to the consumers and hence cement and steel are likely to push up construction costs. But the enlarged spending on infrastructure with over Rs 1.73 lakh crore will make up by creating more opportunities as this is 46 per cent of the planned expenditure as against previous year’s 30 per cent. Besides, a spend of nearly Rs 60,000 crore is budgeted for building rural infrastructure, in reading between the lines. Service tax too may have disappointed the affected sectors but essentially the FM has been able to bring back the ‘feel good’ factor into the market by putting not only more money in the pocket of the consumer but also encouraging growth in the economy.

The government now needs to keep an eye for timely execution and see that the project execution is not mired in bureaucratic tangles.

Further our PM has taken upon himself to forge new alliances which will not only bring in long term funds for infra development but will also help contain security concerns. Recently, India and Saudi Arabia have signed the Riyadh Declaration to put their seal of approval on rapidly growing ties that are moving towards a strategic partnership covering security, economic, defence, technology and political areas and including joint combat of terrorism. The Delhi Declaration, signed during the historic visit of King Abdullah to India in 2006 as the chief guest on India’s Republic Day, had charted out a new path of cooperation between the two countries. Our PM is also keen to evolve a comprehensive energy partnership, with Saudi interests in India and vice versa.

On the back of a good growth oriented and balanced budget, the stage is set for the industry to go back to the drawing board and gear up for the slew of projects which are likely to keep the contractors busy bidding as the 20 km per day initiative accelerates among others.