While sectors like road and railways dominate the government’s capex allocations, the Centre would like to see infrastructure projects come up in all sectors and involve “more and more” private finance, Expenditure Secretary Vumlunmang Vualnam said. In an interview with The Indian Express, the Secretary also said states should not view the 16th Finance Commission’s (FC) recommendations adversely. Edited excerpts:
Much of capex goes to sectors such as railways and roads. Is there any concern about this? What about other sectors’ capacity to utilise funds?
The sectors you mentioned have been major shareholders, so their requirements are also huge. National highways, for instance — building up something like 10,000 kilometers every year, it is a requirement of the country.
Besides the physical issues of taking up such projects, like land acquisition, when it comes to the structuring of the financing, we would like these sectors to involve private finance and the private sector more and more. Highways have managed quite a bit. It’s not that we give a budget and EPC (Engineering, Procurement, and Construction) contracts are just given; with highways it’s quite sophisticated. Within that, HAM (Hybrid Annuity Model) projects… we are now looking at whether BOT (Build-Operate-Transfer) would be a better way to do it.
It’s not about simply saving Budget money, but also which mechanism, by its own design, provides for better build quality and maintenance arrangements. The stakeholders should be incentivised because we would (not) like highways to be built and then deteriorate very quickly. These are issues which require discussion. But otherwise, even the highway sector, the bank of projects they are working on, they will be able to absorb. So, we are quite confident that all our infrastructure sectors are now quite well geared-up to absorb the budgets that we provide.
Power does not feature now in the top-five in terms of capex allocation. With New Economy sectors in focus, will they also get a push?
For power, CPSUs (Central Public Sector Undertakings) fund from their resources. The capex in the Budget is funding those where the government component of funding is required. Otherwise, the power sector is one where our CPSUs have the resources. And with their status, they have the
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delegated powers to do that. But having said that, some major hydro projects in Arunachal Pradesh have recently been proposed and recommended through government financing.
We would like to see infrastructure projects coming in all the sectors. Where they are able to do by themselves, they will do; the delegated powers are there, the Maharatnas and others. Where government
financing is required, we’ll do. Wherever the Public Private Partnership (PPP) structure can be there, we are pushing for that. So, it’s a multipronged approach to infrastructure development.
Before the Budget, FinMin came out with a PPP pipeline that was announced last year. What will be the immediate focus areas?
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There are some sectors where PPP is moving well, like highways, as we have just discussed. Railways is something we are waiting for and I am hopeful that they will now make a reality of PPP initiatives. They have drafted Cabinet notes to have the structures in a clearer way.
The Bhopal railway station is something which is a reality; whether the structuring is the best way of structuring a PPP railway station development is to be analysed, but with a private partner the infrastructure has improved. The thought process also has to move along with that. So, I believe within the railway system, they would recognise the benefits. Now, they’re relooking at New Delhi railway station. They have done quite detailed (work) on how to free up pockets of land which are in and around there, which are used by their staff (as) accommodation, for example, which can be shifted elsewhere, and (how) this prime location can be monetised. So, for railways, I believe this coming financial year will be when we see something concrete. Shipbuilding is another focus. Just about 5% of our export-import cargo goes by Indian-owned ships, which means a lot of rental or leasing cost is going to outside firms. So, it’s a real focus. The Rs 69,000 crore Shipbuilding Mission along with the Maritime Development Fund is something which will really be a focus in the infrastructure sector in the coming times. And not just the big ships, but even what was announced this time — coastal shipping — that is found to be a very efficient way of transporting. Some experiments are already going on to to link rail, road to coastal shipping. These are all initiatives which will bring down the logistics cost.
Southern states seem to have gained from the 16th FC’s recommendations. Any comments on that?
On vertical devolution, the FC has stuck to 41% and the Centre has accepted it.
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On horizontal devolution, they have tweaked some (criteria). To make it broad-based, they have brought in the concept of contribution to GDP, which in many ways rightfully encompasses all the efficiency and effectiveness a state is displaying, and thereby contributing to the national GDP.
Each indicator that they have tweaked a little bit, added, or dropped — they are trying to bring in the element of equity and efficiency.
The way I see it is: the pool is growing, the pie is growing. So, states should not see it in the way that because of the change in the criteria, we are losing; but rather that because the country is growing, revenues are growing. The FC has had detailed interactions with all the states and they have presented all the data, justifications, and arguments and the FC, in its wisdom, has given recommendations. So, we should allow it to be implemented and adjust suitably.
The most expensive projects right now are high-speed rail projects. The cost of the Mumbai–Ahmedabad project has doubled. What about the new seven corridors that have been announced?
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The first one was one where there was Japanese involvement from the beginning. Now, the Ministry of Railways (is working on) indigenous coaches which can go up to 280 km per hour, signalling systems which are almost indigenous with some European collaborators. The point is that with all that indigenisation, the cost should come down. Nevertheless, like Metro projects, these are expensive interventions, especially if they look at elevated corridors like Mumbai-Ahmedabad.
The structuring and financing have to be worked out. The segments have been identified, the technology is beginning to be available, civil work side there is no problem — even now it’s all domestic. But these are huge investments. How the financing package is done, that will be discussed in detail.