The promise of building India

One of the sectors where finance minister Arun Jaitley has been forward looking and has reflected the Narendra Modi-led government’s priorities is in his budgeted expenditure on infrastructure. The Budget wishlist is for more and better roads, uninterrupted power, broadband lines to every village, industrial corridors, ports, new and better cities and a lot else.

The allocation for highways has gone up by over 50 per cent to Rs 37,800 crore, while a Rs 11,635 crore will be given for an outer harbour at Tuticorin port, in addition to Rs 80,000 crore by way of private investment in 16 ports. Another Rs 7,000 crore for 100 new “smart” cities, and Rs 50,000 crore for managing municipal debt for infrastructural needs.

Besides this he has proposed for the first time in the country real estate investment trusts (REITs), which will manage a portfolio of real estate properties, a sort of mutual fund in which income would come from the rent of these properties.

Past experience has shown that investment by the government on roads brings in twice the amount by way of loans and private investment, under what is known as public-private partnerships (PPP). This should be adequate for the 8,500 km of national highways planned, but as the United Progressive Alliance record has shown, it’s not just the expense on the highways but the way the various projects are implemented that will be crucial. However, as
Mr Jaitley noted in his Budget speech, “India has emerged as the largest PPP market in the world with over 900 projects in various stages of development.” But they have been rocked by disputes as well as allegations of corruption.

How the cities are managed to make them more liveable is crucial to the achche din the new government has promised. The UPA’s flagship Jawaharlal Nehru Urban Renewal Mission (JNURM) is presumably being augmented by Rs 50,000 crore to help municipalities pay back loans . This should give the local bodies greater flexibility in meeting their needs. But the amount set aside for the 100 new “smart” cities is clearly inadequate, even if it is only a beginning. Instead of such “greenfield” cities where the required investment is much higher, the money would be better spent on “brownfield’ projects of already emerging cities.

Most urban areas have seen prices go up around five times since 2005, when foreign direct investment was allowed into real estate.

Much of this was speculative and one effect of REITs is that they would bail out FDIs who now find exit difficult.

Since rents are currently just around three to five per cent of the current value of most properties, it is unlikely that local investors would find them attractive. And they do not tackle the major problem of an unchecked rise in prices that have made accommodation too expensive for the middle and working classes.

The Budget does not deal with the crucial need for power except by giving a tax holiday to the sector. Since all the investment is by state or national or private electricity companies, budgetary allocations, except as subsidies, can do little but are important to bail out the state distribution companies not paid by consumers. The problem of power is not lack of investment but inadequate supply of fuel, whether coal or gas. And this is largely a policy question that has yet to be addressed.

A little commented part of the Budget has been a massive increase in transfer to the states from Rs 113,532 last year to Rs 330,764 crore now.
This has meant a corresponding reduction in the Central outlay, and funds for rural development, women and child welfare, drinking water and school education have largely been transferred to the states.

This would be in line with Mr Modi’s stated policy of a more active partnership between the Centre and the states. The only concern is whether this would deny direct Central funds to the panchayats and local bodies instead of through the states. If so it would reverse the important reform under the UPA of empowering them at the cost of states.

The Rs 200 crore for the gargantuan statue of Vallabhbhai Patel overlooking the Narmada dam reflects the Prime Minister’s misplaced priorities.
The 600-foot statue will cost well over 10 times what is budgeted, and is more indicative of the vanity of a man who boasts of a 56-inch chest than a suitable tribute to the Iron Man of India. A far more valuable tribute would be libraries to make his ideas known.

The policy for encouraging SEZs is also highly questionable. They have rightly been seen as a land grab under the garb of industrialisation and much of the land acquired is sold as residential or commercial property. It is also a myth that SEZs boost exports. The existing SEZs have also contributed much less to exports than the many small enterprises outside them.

What is notable is that the finance minister chose to mention two SEZs specifically by name — at Kandla in Kutch and at the JNPT near Mumbai. This specific mention raises some questions. Would the Kandla SEZ be part of government run Kandla port, or would it be handed on a platter to Modi’s favourite backer Gautam Adani who runs the Adani SEZ right next door? The SEZ for JNPT is also tantalisingly close to the vast lands Reliance acquired at Ulwe for an SEZ which was later scrapped. Will this now be revived?

The writer is a Mumbai-based freelance journalist