Infra and power: Budget 2014 gets its focus right
Rathin Basu July 19, 2014
The first Union Budget of the new government is a growth-oriented one. It's good to see a host of bold measures meant to spur investment sentiments and drive economic growth considering the fact that it had less than 45 days to present it.
The thrust on infrastructure was evident. Projects like creation of 100 smart cities, high speed rail projects and metros will boost infrastructure investments. The government intends to push growth in this sector through PPP route and with a promise to take a relook into the dispute settlement mechanism. But it is not clear if this could be achieved in short term, say in one to two years. Alternately one should have gone for guaranteed return mechanism which would have ensured growth.
Conducive investment climate:
The budget also aims at improve the investment climate. With a stable and predictable tax regime in place, we expect the much-needed FDI and FIIs to flow in. Extension of tax holiday for power sector will improve the investment climate and help kick-start the capital expansion cycle. The formation of six debt recovery panels should also reduce non-performing assets (NPAs) in the banking sector. The possibility of citizens becoming direct shareholders is also a sign of banking sector's support to economic growth.
Proposals for power sector:
Focus on solving the coal impasse by increasing coal production and assuring coal supply to power plants makes the government's priorities very clear. Allocation to power in the plan outlay has been significantly increased from last fiscal, which is critical for a sustained growth recovery. The government's expectations of achieving a sustained growth of 7 per cent hinges on the growth in the power sector. To achieve the growth percentage, the power sector must grow above 7 per cent.
The proposal to allocate an initial sum of Rs 100 crore to promote cleaner and more efficient thermal power through 'Ultra Modern Super Critical Coal-based Thermal Power technology' is something that excites us as well. As a leader in supercritical and ultra supercritical steam power plant technology, Alstom globally has under construction over 36 GW capacity globally. In India, the largest fleet of supercritical boilers comes equipped with Alstom's technology.
The supply of power continues to be a major concern. The government's vision to provide 24x7 access to electricity therefore needs to be further complemented with clarity on issues like addressing the cause of losses by the State Electricity Boards (SEBs) and incentivising them to make it profitable. It is not however clear in the budget as to how critical enablers such as land acquisition, acceleration in environmental clearances and removal of associated bottlenecks would be addressed.
Hurdles in statutory/regulatory/license related issues in areas like environment, coal and iron ore mining needs to be eased out to bring the projects on fast-track mode. We were also looking forward to immediate amendment of the land acquisition policy [which was passed in 2013] to help industry and utilities to quickly acquire land. For eg, the new Act could have been amended to exclude direct buyer /seller procuring land on mutual agreement.
Thrust on Urban transportation needs:
On the transport front, proposal of metros in cities with over two million population is another welcome step towards stepping up infrastructure development. With the growing population and urbanization in not just the metros but in tier II and tier III cities, adequate investments in developing the urban transportation infrastructure is a must.
The Rail Budget also struck the right chord with the opening up of FDI - a much-needed push to the cash-strapped sector. The High Level Safety Review Committee (Kakodkar Committee) set up by the earlier government had provided a number of key recommendations to modernise railways. It is imperative that immediate action is initiated on them. Some initiatives such as implementation of ETCS-Level 2 need to be implemented in the Indian Railways on a war-footing to improve the safety levels. Similarly, Railways need to upgrade their technology in locomotives and passenger rolling stock, beyond the LHB coaches supplied by Alstom which is today over 15 years old technology.
The Budget 2014 is a balanced budget and is in line with the industry's expectations. In this earnest, we feel the government's reform agenda is on the right track.
(The writer is Country President of Alstom India & South Asia)