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India Inc's Dream Budget: What the infrastructure sector expects

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India's beleaguered infrastructure sector has been battling with the triple whammy of depleting order book positions, broken cash cycles as well as high debt leveraging over the past one and half years, with many companies going in for corporate debt restructuring. Under these dire circumstances, the sector is hoping for a reprieve from the Union Budget 2013 by way of easing funding norms, providing tax incentives and increasing public sector spending.

"Tax reforms, tax concessions will always be useful. Infrastructure, by definition, suffers from financial viability problem. Infrastructure has to be affordable to the common man. Therefore, any amount of public support through grant, subsidy, viability cap funding, and tax concessions is always welcome," Pradeep Singh, vice chairman and CEO of IDFC Projects, and a member of Confederation of Indian Industry's (CII) national committee on infrastructure, told NDTV Profit in a pre-budget discussion.
 
Funding options like infrastructure debt funds are required for the sector which is facing a shortage of funds, he added.
 
 "Today we are seeing both equity and debt in a state of freeze. Fresh equity, debt is not easily available, probably not available at all. And as more projects arrive claiming more financial investment - debt and equity, we are going to find that the banking sector and the NBFCs - which have traditionally been the debt financers of infrastructure - (and) private equity funds - which have so far been trying to bring in fresh equity - are now wanting, (or) not available in adequate quantities, either because the balance sheets of the banks and NBFCs can't afford or support the increased levels of investments or because they have reached prudential limits."
 
"Therefore, a paradigm shift is now required in terms of being able to access forms and sources of funds which have hitherto not been found typically in the infrastructure sector," Mr Singh said.
 
According to Suneet Maheshwari, managing director and CEO of L&T Infrastructure Finance, and a member of CII's national council on infrastructure, the liquidity crisis in the sector will ease if the government and its agencies like NHAI, BSNL, ONGC, Power Grid, and state electricity boards, among others, pay dues of about Rs 50,000-65,000 crore.
 
"If these dues can be settled quickly, and we take the multiplier effect of this amount - Rs 50,000 crore - at least two levels down, i.e., give it to suppliers who then pay to steel and cement guys, there is a cascading amount of almost Rs 1.5 lakh crore of liquidity crisis."
 
Rushing engineering, procurement and construction contracts is another way to kick start cash flows into the structure, Mr Maheshwari suggested.
 
Other suggestions to ease funding for the sector involved the recycling of equity and securitization of viable projects.
 
"Restrictive clauses in current agreements inhibit developers being able to move out and take their risk capital for another project; they need to be relaxed," said Mr Singh.
 
On securitization, Mr Singh said: "Bond investment will need securitization, which will be a key element of refinancing, take-out financing as well as fresh issuance of equity for new projects. If there are projects which see robust cash flows coming in the future, it should be possible to raise debt on the back of those future cash flows through a securitized instrument and use it for funding equity."
 
The industry also wants clarity on tax issues and some amount of tax predictability as few schemes like Section 80CCF were cancelled post their announcement.
 
"We have had a lot of uncertainty with respect to tax clauses. Infrastructure investments are done for long term. Therefore, predictability is a good idea," said Mr Maheshwari, adding that there is a need for an extension of the tax holiday provided for power generation via Section 80-IA to the infrastructure sector.
 
Meanwhile, Manish Agarwal, executive director of capital projects and infrastructure practice (GRID) at PwC India, said that there is a clear need for attracting foreign investors. "Foreign investors do come in through equity route, through infra PE funds. But for them to come in through debt, IDF route, it will require significant credit enhancement. Projects structure will need to better align with the project structures that foreign PE funds are used to."

Story first published on: February 20, 2013 17:59 (IST)

Tags: Union Budget, Union Budget 2013-14, Budget 2013-14, Budget 2013, Infrastructure, Budget wishlist

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