Only a kickstarter

With a public spend of Rs 1.25 trillion, the budget spells out a coherent roadmap for growth & fiscal consolidation

Having proved without doubt that the Modi government was quite adept at enhancing the administrative and the executive quotient in the country, the union budget was an awaited event which needed to kickstart the economy by infusing public spending. An overall increase of Rs.70,000 crore in investment in infrastructure in fiscal year 2015-16 over the current year with an increase in the allocation for roads and the railways, by Rs 14,031 crore and Rs 10,050 crore respectively is definitely a trigger. The FM has further made provision for an infusion of Rs 80, 844 cr of additional CAPEX of the public sector units taking it to a total of Rs 3,17,889 crore. Considering that the cash rich PSUs would make this investment and inject adrenalin in the economy makes this a credible proposition. The recognition of the PPP proposition turning weak has brought in the wisdom of depending on public spending than private. He also announced the formation of an investment and infrastructure fund and tax-free bonds for raising funds for investment in rail, road and irrigation infrastructure. Proposal to set up 5 new Ultra Mega Power Projects, each of 4000 MWs in the plug-and-play mode with all clearances in place, is a reformed investment magnet and could draw Rs 1 lac crore, provided the distribution end is fixed. In housing for all by 2022, the plan is to build 2 crore houses in rural India and 4 crore in urban India. For roads, the vision is to complete 1,00,000 km currently under construction and additionally build another 1,00,000 km. The progress for DMIC corridors, especially the Ahmedabad-Dholera Investment Region in Gujarat, and the Shendra–Bidkin Industrial Park near Aurangabad, are now in a position to start work on basic infrastructure and have an outlay of Rs 1,200 crore.

The most transformational idea of the budget in line with PM Modi’s vision has been the 14th Finance Commission which has enhanced the share of states in central taxes to 42% from the current 32%  giving more funds in the hands of the states making them more accountable for enhancing the attractiveness of their state as an investment destination. Although there has been no direct mention of the progress on smart cities, this particular devolution of finances to state empowers the state to enhance the civic infrastructure for its cities and make them more attractive for its citizens, for tourists and business travellers. The public procurement bill, the dispute resolution bill and the introduction of a bankruptcy law are other pillars enhancing the attractiveness of the infrastructure sector amongst investors.

The FM has definitely utilized the budget opportunity to inject public spending, laid out a road map for infrastructure with targets for growth & means of finance. The budget is a good indicator of the intent but the devil lies in the execution. Businesses will await the multiplier effect of the public spending infusion. Considering each annual outlay and expenditure has been under 6% of GDP for infrastructure during each of the years from 2007-08 i.e. eleventh five year plan (except 2010-11 when it touched 8.4% of GDP), even if all financial projections were to come true we would not end up spending the required 10% of GDP on infrastructure in the twelfth five year plan which in itself is a dampener for GDP growth. So as a kickstarter this can be considered a beginning, but a very cautious one considering the mandate.