Where will funds come from, asks industry

Fineprint is never good news. A day after Budget 2005 was presented in Parliament, industry has only one question: The reform initiative is ...

Fineprint is never good news. A day after Budget 2005 was presented in Parliament, industry has only one question: The reform initiative is fine, but where will the funding come from?

The question was raised at a seminar organised by KPMG to analyse the Union budget of 2005 in Mumbai.

Clearly disappointed by the government’s move of not including private players in the infrastructure sector, Nasser Munjee, Senior Advisor, Infrastructure and Utilities, KPMG, said, ‘‘When the FM says investments in infrastructure will

continue to be funded through the budget, it’s another way of hinting that the government is going to dominate in this sector, which is certainly not good news.’’

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So while he did appreciate government’s move of dedicated funds through cess on petrol and diesel, he rubbished the entire infrastructure model stating: ‘‘Funding is certainly not a problem. In today’s environment, it cannot take more than three weeks for a project’s financially closure. If a project is good, banks will only chase the same. We are tackling the wrong problem.’’

Stating that Special Purpose Vehicle (SPV), was a wrong model to generate money, he said, ‘‘Risks need to be allocated and spread amongst institutions and funders. If you take the life financing of a project different institutions will be interested in different slices of the risk. But contrary to that, when you do not know what to do in infrastructure then we have a wand and get a SPV, which will not help us to move further.’’

Mahesh Vyas, Executive Director, Centre for Monitoring Indian Economy (CMIE), also rubbished the SPV model stating that ‘‘they cannot pull this, as the government of India is short of funds.’’

Vyas contested the gross fiscal deficit of 4.3 per cent declared by the government.

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He stated, ‘‘The Fiscal Responsibility and Budget Management Act targets that are set, can never be met. The gross fiscal deficit has only crept to become a monster. The actual fiscal deficit in my opinion is around 5 per cent and this SPV model is only being used to cover up the difference.’’

On the tax front, KPMG senior partner Sudhir Kapadia, referring to the fringe benefit tax, said, ‘‘There seems to be no clarity on the whole. It looks like even Esops may be included. Further payment of taxes will increase the administrative burden of the company owing to the paperwork.’’