Innovative Financing ?

DNA ( 07 March 2017 ) carries following news report :

“Metro rail Companies may be allowed to issue TAX-FREE BONDS “

The Ministry of Urban Development has proposed allowing agencies implementing metro rail projects to issue bonds, including TAX FREE BONDS, to raise funds for projects

The Ministry had last week held a workshop with States and Union territories to discuss the draft policy , which will soon be sent to the Cabinet for approval

While detailing the Budget for 2017-18 ( april – March ), Finance Minister Arun Jaitley had said a new metro rail policy  - focussing on INNOVATIVE models of implementation and FINANCING as well as standardization and indigenization of hardware and software will be announced

Now consider this in light of the following recent report from Asian Development Bank :

“ According to the ADB estimates India would require to invest as much as $4363 billion during the 2016-30 period or an annual amount of $ 291 billion, or to 7.4% of the GDP, which is way above that of all major economies and many fold larger than the $ 118 billion currently spent.

However, mitigating climate change would require that India spend $ 5752 billion over the fifteen year period which amounts to an annual outlay of $ 343 billion or 8.8% of the GDP.”

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As you can see from ADB report above , funding requirement of Metro Projects , is only a small fraction of India’s total funding requirement for all types of infrastructure

So , why restrict TAX FREE BONDS to only METRO projects ?

In my view , this innovation must be extended to ALL types of Infrastructure Projects , as suggested in my following blog / email ( to NDA Ministers ) , some 3 YEARS ago :

Monday, 7 April 2014

Don't Ask " How " ?

At the bottom of the 42 page Election Manifesto of BJP , released yesterday , I tried to search , if in very small print somewhere , there was a footnote which read ,

"  Please , don't ask how we plan to implement these promises ;

   From where we plan to find all the money to execute these projects "

Here are my back-of-the-envelope estimates of what some of the MAJOR projects might cost :

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PROJECT   .................................... Approx Cost ( Rs Lakh * Crores  )

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·           100 Mega Cities........................   90

·           Interlinking of Rivers..................  60

·           Sagar Mala of Ports....................  30

·           Highways ( 25,000 Km )..............  50

·           Housing ( 100 mill units )............  100

·           Rivers Cleaning..........................  10

·           Other Infra Projects....................   100

            #   Freight Corridors

            #   Gas Grids

            #    OFC Network

  Total ..........................................Rs  430  Lakh Crores

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Admittedly , not all of these money will be required in the very first budget that NaMo government ( - of course , only if voted to power ! ) , would present by end June 2014

But a problem does not go away by postponement  !

There is only ONE viable solution to the  FUNDING  problem , viz:,

*  Union Government must NOT even try to fund these projects  !

There is NO WAY , it can find these kind of money through  taxation  !

There will be a revolt  !

ANSWER

*  Make it possible for the PUBLIC to invest into these projects by " owning "

    these projects - and earn a reasonable " tax-free " return on  investments

    ( Bonds ? ) in these projects

*  Towards  this end , create various  INFRASTRUCTURE SPVs

*  Immediately modify  PERSONAL INCOME TAX  regime as follows :

   

    #    Up to  Rs 5  lakhs..................... NIL

    #    5.1  - 10 lakhs.......................  8 %

    #    10.1 - 20 lakhs......................  6 %

    #    20.1  - 50 lakhs.....................  5 %

   #     50.1 - 100 lakhs.....................  3 %

   #     Above 100 lakhs......................  1 %

What is likely to happen with such " INVERSE  TAXATION  " regime  ?

Following few things :

*  Total personal tax payer base will go up dramatically from current 4

     crores tax-payers

*  with this " INVERSE  TAX  REGIME " , there will be no incentive to  evade

    taxes and to generate " BLACK  MONEY  "

    There will be no resistance to accept ALL payments by cheque / electronic

    Clearance

    The more you disclose as your income , the less you pay by way of taxes

    ( Of course , incrementally )

*  For a change , we will learn to reward honesty / efficiency / productivity !

    No need to bribe those Income Tax officers  !

*  Suddenly , lakhs of crores of BLACK MONEY will become  WHITE MONEY

   

*  There will be a huge surge in bank deposits ( - even with , the inevitable

    lower interest rates )

*  Banks will be awash with funds to finance businesses / infrastructure

    projects etc , encouraging entrepreneurs / self-employed to set up new

   businesses ( at 2 % interest rates of loans ) and generate millions of jobs

In any case , BJP manifesto promises :

*   Rationalization and simplification of the tax regime - which is currently

      repulsive for honest tax payers

   

*  The process of bringing black money to India , what belongs to India , will

    be put in motion on priority

*  Minimize scope for Corruption

Dear Narendrabhai  ,

Here is your chance to ditch the " Historical Baggage " into the Indian Ocean

and come up with an  INNOVATION   that will take India ahead of China  !

If President Kubitschek of Brazil ( 1956-61 ) - son of a poor salesman - could construct Capital city BRASILIA and a 1500 Km highway , in 41 months , surely , you can do better , 57 years later  !

07  March  2014

www.hemenparekh.in / blogs