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Union Budget 2013-14: Positive announcements for infrastructure but implementation is key, says India Ratings news
01 March 2013

The priority accorded in the Union Budget 2013-14, to addressing some of the many challenges faced by the infrastructure sector, although solutions for some of the problems have to necessarily be found outside the framework of the annual budget.

The announcement regarding constitution of a regulatory authority for the roads sector is welcome and addresses a long felt need. Insofar as the regulator can be constituted quickly and armed with independent powers, it has the potential to address a number of problems plaguing India's highways development programme. If the regulator can facilitate expeditious dispute resolution and ensure fair and practical interpretation of several concession provisions, it can have a salutary effect on the credit quality of many road projects.

The announcement that 3,000km of road projects will be awarded in the first six months of FY14 seems a trifle ambitious given that less than one-fourth of that number was achieved in the first eight months of FY13.

However, if this is sought to be done on the engineering, procurement and construction (EPC) route, as opposed to the build-operate-transfer (BOT) model, the target could yet be achieved. The EPC route will avoid some of the challenges in the BOT model such as developer apathy, aversion of commercial banks to funding toll road projects and over-optimistic traffic forecasts, which have adversely affected the credit profiles of many projects in the past.

The budget also reiterated the government's commitment to press ahead with some of the previously announced measures such as credit enhancement from India Infrastructure Finance Company Limited and the encouragement for setting up of infrastructure debt funds. Both of these have the potential to galvanise the bond markets to fund the massive infrastructure investments that India urgently needs.

However, to reap significant benefits in the form of large debt inflows from fixed income players, particularly foreign investors, it is imperative that the government works towards clearing the policy and project execution cobwebs afflicting the sector as well ensuring a fully functional contract enforcement regime.

It should come as no surprise that the finance minister expects coal imports, which crossed 100 million tonnes during April-Dec 2012, to go up to 185 million tonnes in 2016-17.

While it may be a little premature to form a definitive assessment, the government's plans to encourage public private partnership projects along with the state-owned Coal India should, prima-facie, be deemed positive if it helps accelerate and supplement domestic coal production particularly to meet the acute fuel scarcity facing power projects.

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Union Budget 2013-14: Positive announcements for infrastructure but implementation is key, says India Ratings