The Infra Catalyst

Finance Minister Nirmala Sitharaman read out proposals related to the infrastructure sector immediately after announcing the much-anticipated measures on healthcare. In her speech outlining the vision for Atma Nirbhar Bharat, which contained six pillars - physical and financial capital and infrastructure figured at number two, after health and wellness - the other pillars being inclusive development, human capital, innovation and research & development.

This is a good indicator of the primacy granted to infrastructure by the Narendra Modi government, something that was well reflected in measures announced in the Budget to make the sector the pivot for job creation and turning around the economy.

The numbers speak for themselves. The proposed capital expenditure for FY22, Rs 5.54 lakh crore, is 34.5 per cent higher than the FY21 Budget estimate of Rs 4.12 lakh crore. Also, this is almost 26 per cent higher than the revised estimate of Rs 4.39 lakh crore for FY21 and 15.91 per cent of the total expenditure of Rs 34.83 lakh crore for FY22, the highest in almost 12 years.

Capital expenditure was 13.54 per cent of the total expenditure in FY21 and 12.1 per cent in FY20 (Budget estimates). In fact, the allocation in this pandemic year is more than what was made during the high growth year of FY18 (14.43 per cent of the total expenditure). In FY08, it was 18 per cent.

The capital expenditure route to growth has been the Centres strategy ever since revival was witnessed and pent-up demand was visible beginning October. Sanjeev Sanyal, Principal Economic Adviser in the Ministry of Finance, told Business Today, "In October 2020, capital expenditure was more than double at 129 per cent year-on-year. It went up to 249 per cent in November and 62 per cent in December last year over December 2019. New projects were kicked off, stalled projects were restarted, and payments were fast-tracked."

Sanyal says the higher allocation for even the total expenditure in revised estimates of the current financial year "is essentially a momentum giving strategy". He asks why wait for the next financial year? However, he also adds that now that the finance ministry has done its job, it is now up to the various ministries to implement the projects.

Experts see enhanced capital expenditure as a sign of the government's continued commitment to building infrastructure. "While a 10 per cent increase in outlay for infrastructure was always expected, the government has committed Rs 5.54 lakh crore, which translates into an increase of 26 per cent over the FY21 revised estimate. This clearly shows continued commitment and focus on infrastructure as a key enabler of gross domestic product (GDP) growth going forward," says Arindam Guha, Partner, Government and Public Services, Deloitte India.

Some economists, however, say that even though enhanced infrastructure spending is welcome, it has to be seen in the context of GDP and overall borrowings. N.R. Bhanumurthy, Vice Chancellor of B.R. Ambedkar School of Economics, says, "Out of borrowings of about Rs 12 lakh crore projected in the Budget, capital expenditure of Rs 5.54 lakh crore is a good policy measure. It is better than last year. But one needs to look at it in the context of GDP. The capital expenditure to GDP ratio is projected to come down from 2 per cent in FY21 to 1.7 per cent in next financial year. In absolute terms, capital expenditure may be increasing, but in relative terms, it is actually declining."

Going The Extra Mile

In addition to the capital outlay, the Budget has also made a provision of Rs 44,000 crore for Department of Economic Affairs for projects and programmes that show good progress and need further funds. It has also provided Rs 2 lakh crore for capital expenditure requirements of states and autonomous bodies.

The Budget also set the ball rolling for setting up a development finance institution for long-term infrastructure financing and asset monetisation to generate revenue from brownfield projects. The finance minister said the central government will also put forth "specific mechanisms" to push state governments to make higher allocation towards infrastructure.

"This Budget comes at a time when all of us have decided to give an impetus to the economy. And that impetus we thought would be qualitatively spent and give necessary demand push if we chose to spend big on infrastructure. That is why we chose to spend big on infrastructure, which pans across roads, bridges, ports, power generation, and so on," the FM said at the post-Budget press conference.

Railways/Highways

The Budget has also made record allocation for ministries of railway and highways. The gross budgetary support (GBS) for railways is Rs 1,10,055 crore. This is almost 53 per cent more than Rs 72,000 crore in previous year's Budget. The Ministry of Road Transport and Highways has received an allocation of Rs 1,18,000 crore, which is 31 per cent higher than previous year's Rs 91,000 crore.

The finance minister said the government will award 8,500 kilometres of highway projects by March this year and complete projects spanning 11,000 kilometres. She also announced a slew of highway projects in poll-bound states. These include 3,500 kilometres of national highway projects in Tamil Nadu at an investment of Rs 1.03 lakh crore, 1,100 kilometres projects requiring investment of Rs 65,000 crore in Kerala and 675 kilometres in West Bengal at an investment of Rs 25,000 crore. She said the government plans to award highway contracts worth Rs 34,000 crore, spanning more than 1,300 kilometres, in Assam in the next three years. The railway ministry will also take up the Sonnagar-Dankuni section of the eastern dedicated freight corridor on a public-private partnership basis.

Logistics companies are upbeat about the announcements. "We welcome this Budget as it focuses on infrastructure development. Investment in road development across four states will ensure greater connectivity in Tier -II and Tier-III cities in these states. The target of completing 11,000 kilometres of national highway corridor under Bharatmala project by next year will have a positive impact on the nation's supply chain," says Rampraveen Swaminathan, MD and CEO, Mahindra Logistics. "Additionally, the highest financial package for railways will ensure smooth connectivity between different points and easy and faster freight movement," he adds.

National Monetisation Pipeline

The Budget has introduced a concept of monetisation of operating public assets. "Monetising operating public infrastructure assets is a very important financing option for new infrastructure construction. A National Monetisation Pipeline (NIP) of potential brownfield infrastructure assets will be launched," the FM said in the Budget speech.

Under the plan, railways will monetise dedicated freight corridor assets after commissioning. Airports, too, will be monetised for operations and management concession.

Experts say asset monetisation can be a game changer if handled well. "There is a realisation that railways, with massive coverage, incredible traffic volumes and infrastructure bank, are an excellent monetisable asset. The Budget aims towards this, particularly plans to monetise freight corridors," says Deepto Roy, Partner, Shardul Amarchand Mangaldas.

Guha says as monetisation requires sector specific expertise, one key area which may still need to be addressed is InvITs or similar mechanisms for sectors such as railways, including urban metro projects and urban infrastructure projects, which account for around 30 per cent of NIP.

Meanwhile, the public asset sale list has seen inclusions like operational toll roads of National Highways Authority of India, transmission assets of Power Grid Corporation of India, airports of Airports Authority of India in Tier-II and Tier-III cities, warehousing assets of Central Warehousing Corporation and Nafed and others as well as sports stadiums.

Since long-term funding is one aspect of infrastructure planning and execution where things are found wanting, the Budget has proposed the setting up of a Development Finance Institution with a capital of Rs 20,000 crore and a three-year portfolio target of Rs 5 lakh crore. There is also a proposal for debt financing of InVITs and REITs by Foreign Portfolio Investors. The proposed tax exemption for dividends paid by REITs and InvITs will make these investment vehicles attractive for investors. A REIT is a portfolio of commercial real assets, most of which are leased out, while InvIT is a portfolio of infrastructure assets.

Hope the government's attempt to build the country's backbone yields the desired results.

@eco_no_money