Infra push in Budget? The devil, as usual, lies in the details

A day after the Budget was tabled in the Parliament, the expansionary budget announcements for FY22 are being widely hailed, with investors upbeat about the mega capital expenditure plan outlined in the document without imposing any new levy on taxpayers.

Finance Minister Nirmala Sitharaman has made the infrastructure sector the epicentre of this government’s public capital expenditure strategy, since more infra spends have a multiplier effect on job creation and economic growth. In a post-pandemic year, when GDP growth has plummeted to historic lows and there has been widespread loss of livelihoods, this emphasis on generating more employment through infrastructure expansion hits the right notes. But, as usual, the devil lies in the details.

The Budget has proposed nearly a 25 per cent increase in total spending on the rail-road infrastructure in the coming fiscal year at ₹3.98 lakh crore compared to the budget estimates of FY21 of ₹3.17 lakh crore. The budget has also provided for the establishment of a Development Finance Institution (DFI) to fund the National Infrastructure Pipeline (NIP). The NIP was announced two years back to fund infra projects for at least five years and, already, nearly 700 projects have been identified under this pipeline.

Also Read: 1991 to 2021: How Manmohan’s reforms differ from Nirmala’s

But here’s the catch: A comparison of the allocations in the FY22 budget for the roads and railways projects with the revised estimates for the current fiscal actually shows a decline in allocation. According to an analysis by brokerage Credit Suisse, the combined allocation for roads and railway ministries is lower by about 2% in FY22 from RE FY21, but a 25 per cent jump from BE of FY21. Also, the amount of money the railways ministry will have to generate from extra-budgetary resources has jumped by more than a fourth (up 28 per cent), indicating higher borrowings to generate capex.

The other significant announcement in the budget is asset monetisation as a way to increase infra spending. This means a larger role for the private sector in airports (some have already been handed over to the Adani Group for operation and maintenance under a lease), sea ports and road projects.

Additionally, the Indian Railways has already invited private participation in railway station operation and management. Also, the bidding for private parties to operate passenger trains is simultaneously underway. It is obvious then that through this seemingly major infra push through the Union Budget, the government has imperceptibly shifted at least part of the investment to the private sector.

Also read: Staving off recession: Big 8 proposals of Budget 2021

Jagannarayan Padmanabhan, Director – Transport, CRISIL Infrastructure Advisory, pointed out that higher capex allocation for roads and highways, the continued thrust for capital expenditure in the railways, asset monetisation across all transport sectors, airport privatisation in tier 2 and 3 cities, and seven projects in ports and a significant revenue augmentation through PPP (Public Private Partnership) in railways were the highlights of the Budget.

“The central government has directionally given the much-needed guidance for heavy lifting the infrastructure spends, which could act as a cue for some of the state governments to follow. Policy announcements in the area of infrastructure financing and aircraft leasing augur well for the development of institutional support in realising the projects as set out by NIP.”

DFI

The plan is for the government to provide ₹20,000 crore to set up a Development Finance Institution (DFI) to get cracking on the ₹111 lakh crore NIP. With a corpus of ₹20,000 crore, the DFI would have a lending portfolio of at least ₹5 lakh crore in three years,  Sitharaman said in her budget speech. Nearly 7,000 projects have been identified under the NIP.

Roads

The allocation for the Ministry of Road Transport & Highways is up by nearly 17 per cent in FY22 over BE of FY21 and nearly 10% more than the allocation in the revised estimates for the current fiscal. In FY22, the allocation is ₹1.83 lakh crore versus ₹1.57 lakh crore last fiscal and ₹1.67 lakh crore in RE for this fiscal.

Brokerage Edelweiss said in a note that the government has already awarded more than 13,000 km of roads, costing nearly ₹3.3 lakh crore under the ongoing ₹5.35 lakh crore Bharatmala Pariyojana. Of these, 3,800 km of roads have already been constructed.

“Going ahead, the government plans to award another 8,500 km and complete an additional 11,000 km of national highway corridors by end-FY22. To this end, the road sector’s capex has been increased 10% YoY in the budget. Total road sector capex at ₹1.7 lakh crore is about 18% higher than the budgeted spend of ₹1.47 lakh crore in FY21,” the note added.

Railways

The allocation for the Ministry of Railways has increased substantially, to ₹2.15 lakh crore in FY22 from ₹1.6 lakh crore in BE this fiscal. But, if one were to compare with the RE of the current fiscal, then there is actually a 2% decline in the allocation. And, Edelweiss analysts have noted that the railways ministry “is likely to have undertaken ₹1 lakh crore capex till date in 2020-21 and its ability to meet the FY21 (RE) figure is under the scanner; this puts a question mark on the projected growth in FY22 as well.”

As explained earlier, the budget envisages an increase in private sector input and higher borrowings to make up for the shortfall in budgetary support for the ministry.

Also read: Budget proposes to provide customers option to choose electricity supplier

Aviation

The Airports Authority of India (AAI), which operates and manages most airports in the country, has already leased out six smaller airports to the Adani group, due to increasing government push for private participation in infrastructure development. The two biggest airports in the country, at Delhi and Mumbai (besides three others) were given to different private operators earlier under a lease arrangement earlier. Now, plans are afoot to offer more, smaller airports to private developers, even clubbing some to make the proposition viable. Airports at Varanasi, Bhubaneswar, Raipur, Indore, Amritsar and Trichy are likely to be next on this list of PPP management.

Public transport

The budget also proposed to allocate ₹18,000 crore for augmenting public bus transport and Metro Rail network across the country. Details about the bus service are sketchy but the FM said in her speech that the scheme will facilitate deployment of “innovative PPP models”, to enable private sector players to finance, acquire, operate and maintain over 20,000 buses. On the Metro network, she promised “central counterpart funding” to Kochi Metro (₹19,57.05 crore), Chennai Metro (₹63,246 crore), Bengaluru Metro (₹14,788 crore), Nagpur Metro (₹5,976 crore) and Nashik Metro (₹2,092 crore). Former Finance Minister P Chidambaram pointed out that these provisions for Metro funding were in fact “outlays” and will be invested only if the projects are approved.