Union Budget 2023-24: What does the Infrastructure Sector Demand?

1) Introducing Single-Window Credit Guarantee System: The proposed credit guarantee institution/facilities can offer guarantees for loans or project bonds pertaining to infrastructure projects in eligible sectors developed under the Public-Private Partnership (PPP). Risk Aversion is a major goal targeted via this system.

i) Breach of Contract Risk

ii) Changes in law

iii) Delay/Failures in Land Acquisition

iv) Delay/Failures in Approval of Licenses

v) Delay/Failures related to Financial Close

vi) Termination Risk

Maintenance, Government intervention, and operational practices can be implemented within the one-stop single-window credit guarantee institution in alignment with the applicable best practices. Streamlining operations in the stream is likely to invite high private investment.

2) Establishing dedicated asset-monetization funds at the regional level: With National Monetization Pipeline 2020, the operating infrastructure assets are tended to pace their way forward. The aim must be to enable effective management of the proceeds from asset monetization and use them to further the cause. The government may consider setting up specific funds at the state/regional level. The mandate of these funds can be to provide a dedicated corpus for infrastructure investment, which is not diverted to other areas of government spending and ensure a reasonable return on the corpus via effective allocation.

3) Getting the private sector to invest heavily in infrastructure again. Barring telecom, data centres and renewable energy, the private sector's appetite to invest in greenfield projects remains subdued. In her last Budget speech, the FM had said measures will be taken to enhance financial viability of projects including public-private partnerships. The visible measures taken to date on PPP revival include setting up of Infrastructure Finance Secretariat, as an extended arm of the Department of Economic Affairs. The Infrastructure Finance Secretariat, or the IFS, could this year step up to take a more aggressive role in PPP revival, especially in crafting a PPP framework to address the requirements of the health and education sectors.

4) Rationalisation of GST on cement: The Union Budget would do well to pronounce whether it is desirable to continue taxing cement at the highest slab rate of 28%. Individuals use more than 65% of cement produced and the non-availability of input tax credit hurts the segment the most. Decreasing the cost of public works and providing widespread relief on smaller construction works may be far more impactful in terms of economic development than the short-term revenue foregone.

Sources: BQ Prime, Deloitte