• Govt spending to continue driving infra; budgetary support needed

    Public sector spending is expected to remain the prime driver for infrastructure next year too, especially with programmes like Inland Water Transport and Sagarmala requiring initial funding from the Budget, said Manish Agarwal, PwC Capital Projects & Infrastructure leader, on Budget expectations for the infrastructure sector.

    Responding to questions from the public in Business Standard’s live chat, Agarwal asserted that private sector investment was still to make a comeback in the area of infrastructure spending.

    He claimed that the road sector would remain the largest recipient of budgetary support in the coming Budget. However, there could be an increase in the share for the Sagarmala and Inland Waterways projects. Excerpts of his views:

    On impact of Budget merger on Railways

    It would be interesting to see if the merger of the Railway and General Budgets leads to budgetary allocations for an integrated approach to transport and logistics.

    The merger of the two Budgets would not by itself change the fortunes of the loss-making Indian Railways or have an impact on its performance. It would, however, help to bring more focus on the key issues relevant to the Budget, that is, sources of funds and what they will be used for. “Over the last few years, using it (Budget) for making populist announcements had reduced. Pricing of railways has also largely moved out of the Budget speech, into a regular commercial decision taken from time to time. Of course, this change alone will not have any impact on performance; but I do see progress against the five year plan set out by the Railways,” he said.

    On budgetary salve for note ban impact

    Agarwal said that he was not sure whether the government’s surprise demonetisation measure had had an impact on investments in the infrastructure sector. However, there would be disruption in construction activity due to the note ban — an issue which he expects would be resolved over time. Instead, he pointed to stress in the banking sector as having a greater impact on bringing private investments back into infrastructure.

    Toll roads would certainly have faced an impact and some compensation for toll road operators could be part of the Budget.

    On impact of tax sops and subsidies on infra spend

    While, PM Narendra Modi’s speech on New Year’s eve suggested Budget 2017 might allot major funds to subsidies and tax sops to offset the demonetisation pain, Agarwal did not expect it to cut into the allocations for the infrastructure sector. “I would expect the fiscal space for additional subsidies to be created through higher tax revenues. So, I wouldn’t expect it to hit infra spend. On the contrary, increased infra spend would be in line with the messaging in the New Year’s eve speech,” he said.

    On govt’s new credit rating system

    Adopting a wait-and-watch approach on any impact from the government’s proposed new credit rating system for infrastructure, Agrawal said, “I expect there could be a more nuanced evaluation of construction period risks (for example, extent of land acquisition completed could be a differentiator). This could help banks and other institutional financiers. I wouldn’t expect bond financing of greenfield risk, initially.”

    On tax incentives for infra financing

    Tax incentive to attract long-term retail capital into infrastructure could help, Agarwal said, particularly with volume of operating assets now being large. However, he explained that the overall approach seems to be of reducing tax concessions. “In line with that, I would be more keen to see steps for creating a market for long-term bonds,” he said. Joe Theismann Jersey

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