Infrastructure: The second pillar in Budget 2021, standing tall

The infrastructure sector has received a much-needed boost in this budget. The Government launched the National Infrastructure Plan (NIP) in Dec 2019 with a focus on 6,835 projects. Of these, 217 projects have been completed which contributes to over INR 1.1 Lakh Cr of capital outlay.  

The list of projects to be undertaken has been increased from 6,835 projects to 7,400 projects. The capital outlay has increased from INR 4.39 Lakh Cr to INR 5.54 Lakh Cr. Increase in capital expenditure has been given prime focus in the budget clearly indicating the focus on Infrastructure to rebuild a pandemic-hit India.  

The three pillars for Infrastructure laid down in the budget are as follows:

1. Creating an infrastructure financing Institution-The focus on creating a development financial institution (DFI) with an outlay of INR 20,000 Cr. and having a lending portfolio of about INR 5 lakh Cr. in 3 years would provide the much-needed fillip for new Infrastructure projects that are facing funding difficulty on account of the sector reeling from the banking and stressed asset crises.
2. Monetizing existing infrastructure assets- Monetization of existing assets pipeline and dashboard creation is a good step toward the PPP/privatization route. The focus on roads, power transmission, airports, and railways operation & maintenance would create significant private interest and build capital for Govt to create new infrastructure projects. Projects under NHAI, PGCIL, GAIL, IOCL, HPCL, Airports of Tier 2 and 3 cities, warehouses under central warehousing company, and sports stadiums etc. would be under this asset monetization scheme.
3. Increasing the outlay for capital expenditure in state and central budgets-The capital outlay for the central Government has been increased to INR 5.5 Lakh Cr. which is almost 35% above last year's budget estimates. Further state Government CAPEX has been provided above INR 2 Lakh Cr. The capital expenditure outlay across center and state is a significant step toward building infrastructure projects across various sub-sectors.

a)       Roads & Highways

Focus on Bharatmala projects has been significant. National highways of about 8,500 km are expected to be awarded and about 11,000 km to be completed in FY2021-22. Apart from this, the focus has been on states like Tamil Nadu, Kerala, West Bengal, and Assam where a huge capital outlay is planned to develop/upgrade roads in these states.

NHAI has sponsored an InvIT to attract domestic and international institutional investors, and 5 operational roads worth INR 5,000 Cr. are being transferred to the NHAI InvIT.

b)      Railways

The National Railway Plan (2030) has been released by the Indian Railways which would be the focus area for Railways in this new decade. PPP focus in certain areas is a welcome step for the railways in increasing efficiency as well as creating capital needed for the overall growth of this sub-sector. 100% electrification of broad-gauge routes is expected by 2023-end, thereby creating opportunities for EPC firms in the sector.

DFCCIL corridor (East and west) which is expected to be commissioned by mid-2022 would create large opportunities in logistics and industrial corridors. New DFCCIL routes planned over the next few years such as the East Coast corridor, North-South corridor, etc. are expected to develop the economy as well as job creation. This would enable to balance the logistics tilt from road transportation to railways and help to bring down the logistics cost significantly across routes.       

c)       Ports/Shipping

The focus on privatization/PPP of ports and terminals is a clear indicator of the Government’s focus on monetization of existing assets to raise capital and create new infrastructure. About 7 projects are expected to be offered under the PPP route by major ports worth INR 2,000 Cr. in FY22. Focus has also been providing subsidies to Indian shipping companies in global tenders floated by ministries and CPSEs.

The shipbreaking industry has also received considerable focus with plans to double the Light Displacement Tonne (LTD) capacity from 4.5M by 2024 and creating over 1.5 Lakh jobs for the youth.    

d)      Airports

The privatization of Tier 2 and Tier 3 city airports of AAI is on the anvil for asset monetization. These Airports will be monetized for operations and management concession, creating the necessary capital for upgrading and creating new/existing airports across the country. Udaan scheme has been one of the fundamental programs of the Government and raising the capital for this program would be a key priority.  

e)      Waste & Water

The focus on waste management has been substantial with a focus on faecal sludge management and waste-water treatment, source segregation of garbage, reduction in single-use plastic, reduction in air pollution by effectively managing waste from construction-and-demolition activities, and bioremediation of all legacy dump sites. The Urban Swachh Bharat Mission 2.0 will be implemented with a total financial allocation of INR 1,41,678 Cr over five years from 2021-2026.

Underwater supply, the Jal Jeevan Mission (Urban), will be launched which aims at a universal water supply in all 4,378 urban local bodies with 2.86 Cr household tap connections, as well as liquid waste management in 500 AMRUT cities. This will be implemented over 5 years, with an outlay of INR 2,87,000 Cr.

The direction of the Government has been clear and focused on Infrastructure development in this post-pandemic era. The Budget also keenly looks at the financing of Infrastructure with a new DFI on the anvil to fund projects, easing certain issues of foreign wealth funds such as the prohibition on private funding, restriction on commercial activities, and direct investment in infrastructure. These are a step over and above the 100% tax exemption to increase sovereign wealth fund investments in India.

The decisions taken via these steps are a clear indicator of the Government’s vision on Infrastructure growth and development over the next few years.   

Authored by:

Aryaman Tandon, Practice Leader, Infrastructure, Praxis Global Alliance