Infrastructure: 5 terms you could hear in Budget 2015 of INDIA

India has 4.6 million km of roads. Only 53% of these are paved, according to the World Bank data. As countries get richer, the percentage of paved roads increases. Hence, in rich countries more than 70% of roads are paved. This is just one example.

Capital expenditure is the money that is spent for creating new infrastructure in the country. The money the government invests in roads, bridges, airports, urban infrastructure as well as rural development is a part of capital expenditure.

Here are a few terms you could hear in Budget 2015 on infrastructure:

1.PPP projects: Public Private Partnership or PPP is a contract between a public sector authority and a private party. The private party assumes substantial financial, technical and operational risk in the project. The public sector may also bear the cost of the project and engage the private party for its expertise alone. Most of the roads, bridges and metro rails are built on PPP basis.

2.Infrastructure fund: The government ensures that the funds allocated for certain development projects are spent on the projects by creating a separate fund. The expenditure of the fund is closely monitored by the respective public authority. One such fund is the RIDF. Rural Infrastructure Development Fund (RIDF) was instituted in NABARD with an announcement in the Union Budget 1995-96 with the sole objective of giving low cost fund support to State Governments.

3.Cost bidding process: Large infrastructure projects may be announced by the government and the project awarded by the government to the private sector on the basis of the project – cost bidding process. The company that gets the project is allowed to build and operate the project for a certain time frame and then is expected to hand over the infrastructure to the government. A case in point is the Mumbai metro project awarded to Reliance Infrastructure.

4.Infrastructure bonds: The government also invites infrastructure financing from the public in the form of infrastructure bonds as well as infrastructure debt funds. Infrastructure bonds have a maturity of ten years and a lock - in period of five years. They enjoy a tax break under section 80 C of the Income Tax Act. Infrastructure debt funds aim to raise low cost, long term resources to refinance infrastructure projects. Both the bonds and fund are safe investments. Major contributors to such papers are the insurance companies looking to invest in long term debt instruments.

5.IIFCL: ‘IIFCL was incorporated under the Companies Act as a wholly-owned Government of India company in January 2006 and commenced operations from April 2006 to provide long term finance to viable infrastructure projects through the Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd (IIFCL), broadly referred to as SIFTI.’, states the official website. IIFCL funds infrastructure projects in transportation, energy, water, sanitation, communication, social and commercial infrastructure. The company raises funds through its mutual fund registered with SEBI.