NEW DELHI: Infrastructure sector is set for a massive fiscal stimulus of upto 1 lakh crore, albeit of a different type that will not tax the government finances.
The government is working on a mechanism for expeditious release of pending dues of companies, mostly to those operating in infrastructure space, as part of its efforts to spur investments.
“There is sometimes unnecessary delay in clearing payments and that leads to cash flow issues and holds up investments…the idea is to not just expedite implementation of projects but also address basic issues that impact the sector,” a senior government official told ET .
These dues add up to about 1 lakh crore, about a tenth of the total annual government expenditure. Road sector alone accounts for about 20,000 crore worth of payments locked up in disputes or procedural clearances.
Railways, power, projects under various schemes both under centre and state governments and payments held up at public sector units could add another 70,000-80,000 crore, the official said.
A number of state electricity board have huge pendency in clearing dues of discoms and their release could provide them some succour. The centre on its part is finalising a package for distribution companies that includes issuance of bonds and some moratorium on debt repayment for distribution companies.
In the normal course it could take as much as three months to get your payments after supply of goods or services supplied to the government but time taken could stretch into months if any objections are raised.
Industry has petitioned the government on how the delayed payments hurt not just big infrastructure players and prevent investments but also smaller entities dependent on them there by impacting the whole chain.
Companies are forced to borrow larger sums for their working capital needs if payments get stuck, raising their interest costs and weakening their balance sheet.
“Release of delayed payments will act a semi fiscal stimulus and catalyse investments,” said vinayak chatterjee, who’s leading the infrastructure initiative at the industry body CII.
The UPA government, facing all and criticism on stalled decision making, is attempting to take corrective measures to boost growth that fell to a nine-year low of 6.5% in 2011-12. Promising a big push to infrastructure sector, Prime Minister Manmohan Singh on June 7 pledged expeditious action in award of key infra sectors and involve the private sector in a big way in the creation of physical assets.
“We must do everything possible to revive business and investor sentiment. We must work to create an atmosphere which is conducive to investment and to removing any bottlenecks that may be hurting the growth process,: he had said.India requires nearly $one trillion over the next five years to build its creaking infrastructure and put the country back on 9% growth trajectory. But, the cash-strapped government expects a large part of $one trillion to come from the private sector.
The centre may also ask state governments not to hold up payments to complement its efforts to provide a fillip to the economy.
“The idea is to ask departments to cut the procedural delays and resolve dispute expeditiously,” the official said.