India’s dream to become $5 trillion economy: Budget should focus on infrastructure push

Infrastructure sector is undoubtedly the key driving force in the growth of any economy. In the past couple of years the world economy, including India, has attempted to neutralize the negative impact of COVID 19 pandemic on the economy. In Budget 2022-23 Government of India (GoI) focused on giving the necessary push to the economy by investing in various infrastructure projects. The infrastructure sector will expect similar push if not greater in the upcoming Budget to keep India on track to achieve its aim of becoming $5 trillion economy by 2025. Now as the economy gathers pace to achieve double digit growth, we anticipate that the government’s investment focus would be in the following key infrastructure sub-sectors like roads, railways, renewable energy, etc. and new sub-sectors like multi-modal logistics, green hydrogen, data centres etc.

Transport sector:

In 2022, India saw a major push in construction of highways with more than 5000 kms of National Highways constructed. Targeted development of highways under the Bharatmala scheme has helped in bridging of infrastructure gaps in development of economic corridors. An increased expenditure in the upcoming Budget in highways would lead to employment generation, speedier access to hinterland, bridging gaps in peripheral access roads and enhance growth in logistics sector to boost creation of logistics parks/hubs. The government would also have to focus on developing EV infrastructure along highways.

The last year’s Budget saw an increase in the fund allocation to Indian Railways for modernization and development. The introduction of high speed Gati Shakti trains and development of high speed corridors has led to faster movement of passenger traffic and cargo. An increase in capital outlay in the upcoming Budget would help railways in increased focus on R&D, increased safety, modernization of rolling stock &

railway stations, modern cargo terminal, transition of the railways towards net zero emissions carbon emissions goal by building renewable power project.

The cargo traffic in all major ports has increased in the past couple of year, after the slow down caused by the pandemic. Most of the major ports face challenges in handling large container cargo ships. As India is aspiring to become the transshipment hub in the Indian Ocean region, it needs to focus on capital expenditure in ports to augment the draft & capacities in all major ports, addition of new berths, use of technology for swift turnaround time, creating new opportunities for private sector investments in port infrastructure as well as construction of new ports similar to Vizhinjam Seaport.

Energy sector:

Since 2015, India has progressively increased its commitment to achieve 500 GW of non-fossil energy capacity by 2030. This has led to increase in FDI in the sector. The production linked incentive scheme was introduced by GoI to increase the domestic manufacture of solar modules. However, the quantity and quality of locally produced modules have affected the growth of projects. The introduction of BCD and ALMM has negatively impacted the cost structure of upcoming projects. In the upcoming Budget the industry will expect GoI to partially defer the implementation of BCD till such time local manufacturing capacities are enhanced to meet the demand. A favourable tax and duty regime would confidence in the developers group and help in achieving the short term and long term goals in the sector.

In line with the announcement in last year’s Budget, India recently launched the framework for issuance of Sovereign Green Bonds (SGB). The proceeds from the SGBs shall be used towards financing and refinancing various green projects i.e; renewable energy, clean transportation, water and waste management etc. The policy does well in de-linking the investor from the project related risks.

GoI recently introduced the National Green Hydrogen Mission which promised the outlay of Rs. 19,744 crores of investment. Many developers have already tied up with global majors for both production of green hydrogen in India and domestic manufacture of electrolysers. This industry could benefit from waiver of import duties on key equipment such as electrolysers used for production of green hydrogen. The growth in the green hydrogen space would also enhance the growth of renewable energy projects and help in climate change initiatives.

Digital infrastructure:

India aspires to be a global hub for data centres. It’s cheap cost advantage, availability of trained labour, minimal climatic risk, stable government, and robust data protection legislation gives it a good chance to achieve its expectations. GoI in 2022 recognized data centres with infrastructure status, which grants developing companies the access to long term debt funding and foreign currency funding through ECB route. An increase in capital investment, tax holidays and subsidies in this sector in the upcoming Budget would propel growth and investments in data centres.

While the expectations mount, we also need to bear in mind that the Government would like to reduce expenditure to maintain the fiscal deficit. We look forward to a balanced Budget addressing the expectations of all sectors and the national interest.

Deepak Chowdhury is a Partner, Energy & Infrastructure at the law firm IndusLaw

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