Budget 2012-13 (Infrastructure): Better fund availability

Infrastructure – or the lack of it — has taken a good deal of blame in stifling growth. This Budget, then, is likely to address allocations and better utilisation of these funds across segments.

That the coming fiscal will be the first year of the Twelfth Five-Year Plan is also another factor that can push infrastructure spending.

Measures to improve availability of finance for infrastructure projects also take prime position this Budget.

Addressing funding

The long gestation periods for infrastructure projects resulted in banks facing an asset-liability mismatch and funds drying up for the sector. Steps to solve funding difficulties have already begun.

For instance, in the previous Budget, Government undertakings were allowed to raise up to Rs 30,000 crore in tax-free bonds. The first Infrastructure Development Fund, which pools investments from domestic and offshore entities, has just been launched.

The other route to fund-raising was tax-saving infrastructure bonds, under which tax deductions of up to Rs 20,000 a year could be claimed.

It was meant to secure funds from retail investors, but saw little success, in part due to the lower deduction limit.

Therefore, expectations are that this limit will be raised to at least Rs 50,000.

Improving access to funds will allow infrastructure developers to step up bidding or else secure debt on better terms. For instance, under current rules, a road developer cannot have more than three projects awaiting financial closure if it is to bid for more projects.

Companies such as GMR, Patel Engineering and Ashoka Buildcon have been labouring under high debt. Smaller companies such as ARSS Infra have even gone into debt restructure.

Increased allocations

Allocation across infrastructure segments, whether roads, airports, rail or ports, is likely to increase in this Budget.

Budgetary support for infrastructure has been steadily rising in previous budgets, expanding 23 per cent in the last year alone.

Further, with the urban population increasing to 32 per cent now from the 28 per cent a decade ago, spending on strengthening urban infrastructure could pick up.

The focus would be on projects in water, sanitation and sewerage, roads, bus shelters and so on.

Development programmes such as JNNURM are, in fact, well short of estimated Eleventh Plan expenditures.

Construction companies operating in this space such as MBL Infra and Unity Infraprojects could further benefit from having well-established relationships with State government bodies.

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