The multiplicative effect has been facilitated by the government’s intention to permit tax-free infrastructure bonds for projects in some sectors. Given the 10 per cent overall capital adequacy ratio of financial intermediaries, the NIIF’s Rs 1 lakh crore can be leveraged about 10 times. This capital infusion will enable the trust to raise debt, which can in turn be invested as equity in infrastructure finance companies such as the Indian Railway Finance Corporation and the National Housing Bank. Add to this the annual budget inflow of Rs 20,000 crore to the National Investment and Infrastructure Fund (NIIF) - an allocation of Rs 1 lakh crore over the next five years. Given the budgetary estimate for infrastructure spending in 2014-15 - Rs 2,10,000 crore - this is an increase of 33 per cent. The budget envisages that, compared to 2014-15, infrastructure investment will increase by Rs 70,000 crore in 2015-16. Despite the pressure on fiscal consolidation, the budget has created enough room for infrastructure spending using its own resources as well as public-sector units. The budget focuses on public investment, which, if implemented effectively, will have large spillover effects on growth. The principal positive measure initiated in this year’s budget was the significant outlay for infrastructure spending. Given the significant slowdown in investments from the private sector - because of over-leveraged balance sheets as well as lower availability of credit, thanks to the distress in the banking sector - the revival of capital expenditure hinges on increased public spending. It is the quality of execution and time taken for implementation of infrastructure projects that determine the bang for the buck.
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