Union Budget 2016-17: Infrastructure and Investment

Mar 1, 2016 15:50 IST

The Union Finance Minister Arun Jaitley on 29 February 2016 presented the Annual Financial Statement or the Union Budget for 2016-17 in the Lok Sabha. In his budget speech the minister listed nine pillars on which the Government will focus on in order to transform India into a developed nation.

The nine pillars are - Agriculture and farmers' welfare, rural sector, social sector including healthcare, education, skills and job creation, infrastructure and investment, financial sector reforms, ease of doing business, fiscal discipline, tax reforms to reduce compliance burden.

The objective of the initiatives under the infrastructure sector is to build modern infrastructure for a growing India in order to enhance efficiency and quality of life.

Union Budget 2016-17

Road Sector

Construction

• Sanction for construction of 10000 kms of new National Highways will be given in 2016-17. This will be much higher than in the two previous years.

• In addition, nearly 50000 kms of State highways will also be taken up for up-gradation as National Highways.

Policy reforms

Following procedural and policy reforms were suggested to fast-track the development of road sector.

• In the medium term, permit-raj will be abolished in the passenger traffic segment so that it will benefit the common man and the middle class.

• Government will enact necessary amendments in the Motor Vehicles Act, 1988 and open up the road transport sector in the passenger segment.

• An enabling eco-system will be provided for the States which will have the choice of adopting the new legal framework.

• Under the new frame work, entrepreneurs will be able to operate buses on various routes, subject to certain efficiency and safety norms.

• The suggested policy changes will result in more efficient public transport facilities, greater public convenience, new investments, creation of new jobs for our youth, growth of start-up entrepreneurs and other multiplier effects.

Ports

450 crore rupees were allocated for Sagar Mala Project in 2016-17. The Union Cabinet gave its in-principal approval to the project in March 2015 to promote port-led direct and indirect development in the country.

• New greenfield ports will be constructed both in the eastern and western coasts of the country.

• 800 crore rupees were allocated for the development of this sector including development of National Water Highways.

Civil Aviation

• The Government will announce a comprehensive action plan for revival of unserved and underserved airports in the country.

• At present, there are about 160 airports and air strips with State Governments which can be revived at an indicative cost of 50 crore to 100 crore each. The Union Government will partner with the State Governments to develop some of these airports for regional connectivity.

• Similarly, 10 of the 25 non-functional air strips with the Airport Authority of India will also be developed.

Oil and Gas

• Amidst declining domestic production and raising imports, the stated objective is to achieve self-sufficiency in this sector through policy means.

• Gas production from deep-water, ultra deep-water and high pressure-high temperature areas, which are presently not exploited on account of higher cost and higher risks will be incentivized through appropriate policy changes.

• A proposal is under consideration for new discoveries and areas which are yet to commence production, first, to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels.

Reforms in Public Private Partnership Policy

In order leverage the potential of private sector in the development of infrastructure following three new initiatives were proposed to the policy on Public Private Partnership.

1) A Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17 to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts

2) Guidelines for renegotiation of PPP Concession Agreements will be issued, keeping in view the long term nature of such contracts and potential uncertainties of the real economy, without compromising transparency

3) A new credit rating system for infrastructure projects which gives emphasis to various in-built credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often results in mispriced loans

Reforms in FDI Policy

Following reforms were suggested in the Foreign Direct Investment (FDI) and related policies in sectors covering the areas of insurance and pension, Asset Reconstruction Companies, Stock Exchanges, etc.

100 percent FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India. This will benefit farmers, give impetus to food processing industry and create vast employment opportunities.

• Foreign investment will be allowed in the insurance and pension sectors in the automatic route up to 49 percent subject to the extant guidelines on Indian management and control to be verified by the regulators.

• 100 percent FDI in Asset Reconstruction Companies (ARCs) will be permitted through automatic route. Foreign Portfolio Investors (FPIs) will be allowed up to 100 percent of each tranche in securities receipts issued by ARCs subject to sectoral caps.

• Investment limit for foreign entities in Indian stock exchanges will be enhanced from 5 to 15 percent on par with domestic institutions. This will enhance global competitiveness of Indian stock exchanges and accelerate adoption of best-in-class technology and global market practices.

• The existing 24 percent limit for investment by FPIs in Central Public Sector Enterprises, other than Banks, listed in stock exchanges, will be increased to 49 percent to obviate the need for prior approval of Government for increasing the FPI investment.

The basket of eligible FDI instruments will be expanded to include hybrid instruments subject to certain conditions.

• FDI will be allowed beyond the 18 specified Non-Banking Financial Company (NBFC) activities in the automatic route in other activities which are regulated by financial sector regulators.

• With a view to promote Make In India and following the practices in advanced countries, foreign investors will be accorded Residency Status subject to certain conditions. Currently, these investors are granted business visa only up to 5 years at a time.

A Centre State Investment Agreement was proposed. This will ensure fulfillment of the obligations of the State Governments under Bilateral Investment Treaties. States which opt to sign these Agreements will be seen as more attractive destinations by foreign investors.

Central Public Sector Enterprises related

• The Department of Disinvestment was renamed as the Department of Investment and Public Asset Management (DIPAM).

• In order to utilize the assets of CPSEs for generation of resources for investment in new projects a new policy was approved by the Government.

• For this, divestment of individual assets like land, manufacturing units, etc. to release their asset value for making investment in new projects will be encouraged.

• In this regard, the NITI Aayog will identify the CPSEs for strategic sale.

• A comprehensive approach will be adopted for efficient management of Government investment in CPSEs by addressing issues such as capital restructuring, dividend, bonus shares, etc.

Funds Allocation

For roads and highways 55000 crore rupees proposed for 2016-17. In addition, the National Highways Authority of India (NHAI) will be allowed to raise 15000 crore rupees through bonds.

Total investment in the road sector, including Pradhan Mantri Gram Sadak Yojana (PMGSY) allocation of 27000 crore rupees, would be 97000 crore rupees during 2016-17.

• Together with the capital expenditure of the Railways, the total outlay on roads and railways will be 218000 crore in 2016-17.

• To augment infrastructure spending further, Government will permit mobilisation of additional finances to the extent of 31300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority through rising of Bonds during 2016-17.

• Overall, outlay for infrastructure is pegged at 221246 crore rupees in 2016-17. It is an increase of 22.5 percent over the 2015-16 for which 180610 crore rupees were allocated.

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Quick Digest

Who: Union Budget 2016-17

Where: Lok Sabha

What: Presented

When: 29 February 2016

Is this article important for exams ? Yes8 People Agreed

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