Reality check: With Coal India stake sale and infra reforms, has the govt really stepped on gas?

In a bid to placate the critics and keep up the reform momentum, the cabinet committee on economic affairs (CCEA) on Wednesday took a slew of decisions, including a further 10 percent stake sale in Coal India and new steps to revive the key infrastructure sector. Various industry bodies have hailed the decisions taken by the government as they expect a positive impact on the economy. Here are the key decisions taken yesterday and their likely impact: [caption id=“attachment_2513048” align=“alignleft” width=“380”]  Reuters[/caption] Coal India disinvestment: The cabinet yesterday cleared the sale of another 10 percent stake in state-run Coal India that could raise as much as $3 billion. The move is aimed at getting more funds to spend on infrastructure. The government owns about 79 percent of the world’s largest coal miner. However, the timing of the stake sale has not been decided. The finance ministry will take the final decision, according to Power and Coal Minister Piyush Goyal. The move is aimed at closing the huge gap in the government’s disinvestment target and the actual amount raised, which stands at about $2 billion, or less than 20 percent of the target. The move is at the best a signal to the investors and critics that the government is at least making some efforts on the path to disinvestment. However, there is no reason to believe that it will meet the target or that it is indeed serious about divesting the control over public sector companies. Cochin Shipyard IPO: The government would launch an initial public offering of Cochin Shipyard Ltd that builds and repairs big vessels. The plan is to sell just 10 percent stake in the company, which has witnessed a 5-fold rise in turnover to Rs 1,859 crore in 2014-15 from Rs 373 crore in 2005-06. Its net profit has more than doubled during the period from Rs 94 crore to Rs 235 crore. It is building four ships at an estimated cost of Rs 1,400 crore for Andaman & Nicobar. Industry body CII has said the move is “a major first step towards unlocking the port sector.” Compensation for infra developers for project delays: The government has taken two decisions aimed at reviving the infrastructure sector: compensating developers in case of delays in highway projects and empowering the ministry concerned to okay projects with civil construction cost of up to Rs 1,000 crore. The decisions will benefit at least 34 key highway projects. Earlier, the government had allowed developers to divest 100 percent equity in projects two years after the completion of such schemes to unlock investments worth about Rs 4,500 crore in the sector. The Cabinet has also given a free hand to the Ministry of Road Transport and Highways to extend the tolling period of highways if the delays are not attributable to the developer. According to the ministry, the main objective of the proposal is to revive languishing highway projects. The likely impact: While the decisions are likely to help cut the delays in approvals, the key problem with the roads sector lies elsewhere. A recent analysis by rating agency Crisil of 92 highway projects being constructed under the build, operate, transfer (BOT) model found that around half of them are facing implementation risks because of delays in land acquisition and other clearances, and weak financials of sponsors. “Right of way – or land – issues are the primary reason for time and cost overrun in projects and low overall progress of highway construction in India. Weak financials of sponsors and inability to bring in equity as well as support for cost overruns in a timely manner are expected to aggravate matters,” the report had said. These projects require equity and cost overrun support of Rs 28,500 crore. Of this amount, sponsors may be able to meet meet 16,000 crore. Crisil sees a huge shortfall of Rs 12,500 crore. The CCEA decisions taken on Wednesday, however, does not solve the land acquisition issue, though compensating the developers for delays will help them financially. Interest subsidy scheme for exports: To stem the consistent decline in exports, the government has extended a 3 percent interest subsidy scheme for exporters. This scheme will have a financial implication of about Rs 2,700 crore per year, according to the government. The Interest Equalisation Scheme, which is valid for five years, will be evaluated after three years. However, it added that the actual implication would depend on the level of exports and the claims filed by the exporters with the banks. Exporters have hailed the decision, saying it will help control the decline in exports and also increase competitiveness of domestic products in the global market. “Credit cost has become all the more important as the cycle of exports has elongated due to global contraction in demand and liquidity forcing the exporters to borrow for longer period,” the Federation of Indian Export Organization said in a statement. Easier norms for bilateral aid to promote Make in India: The government has eased the norms governing bilateral Official Development Assistance (ODA). The new norms allow the finance and external affairs ministries, with the approval of the prime minister, to accept bilateral assistance from countries in addition to existing partners such as the US, the UK, Japan and Germany. The move is expected to boost the Make in India initiative as the move will encourage corporates from these bilateral partners to invest here. “It is expected that by accepting offers of special loan for projects in infrastructure sector and in sectors of strategic importance on mutually agreed basis, the extensive capital requirement in these sectors will be fulfilled,” the official statement said. The government expects the decision to augment the funding of projects in infrastructure and sectors of strategic importance. As per the modified guidelines, bilateral assistance for a minimum of $1 billion, of which 50 per cent should be untied loans, can be accepted for capital intensive projects and other projects of special nature. With inputs from agecnies