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Editorial Articles


Issue no 47, 18- 24 February 2023

Budget 2023-24 Infra Shield Amid Global Headwinds

Rajiv Theodore

The Union Budget 2023-24 is a powerpacked, all-inclusive Budget that emphasises not only on making the economy future-ready but has also infused a high-octane booster dose to the infrastructure sector. Pushing forward a sustained focus on infrastructure and investment, Finance Minister Smt. Nirmala Sitharaman announced a capital outlay of Rs 10 lakh crore (33.4% year-on-year increase) - a much needed move to accelerate economic growth as the infrastructure sector is an engine having a multiplier effect across the entire ecosystem including employment. This allocation translates into 3.3% of the GDP. The capital expenditure at 3.3% of GDP, which is the highest in almost two decades, will benefit the economy as exemplified in the time-tested Keynesian principle of spurring infrastructure to create jobs and channelise multiplier cycles. The proposal will act as a force multiplier for other sectors as there would be continuity of the 50-year interest-free loans to state governments to finance infrastructure investments. Besides the announcement of the highest-ever capital outlay for railways - of Rs 2.4 lakh crore, the proposal to create a Rs 10,000 crore Urban Infrastructure Development Fund (UIDF) for tier-2 and tier-3 cities will ensure that benefits of infrastructure development percolate to all sections of the economy. With its focus on the seven priorities for the 'Amrit Kaal', this Budget does reflects the government's commitment towards inclusive development.

Accelerating Gati Shakti

The government has separately identified more than 9,000 projects under the National Infrastructure Pipeline that will also get a big leg-up with this spending. Road Transport and Highways Minister Shri Nitin Gadkari said this budget would equip India with new-age infrastructure, help reduce imports and strengthen the country's energy sector with a futuristic approach. The transport sector remains the largest sector for expenditure, with an allocation of Rs 5.17 lakh crore in the coming fiscal year, against Rs 3.90 lakh crore in the current one. About 100 critical transport infrastructure projects for the last- and first-mile connectivity for ports, coal, steel, fertiliser, and foodgrain sectors had been identified and would be taken up on priority with an investment of Rs 75,000 crores, including Rs 15,000 crores from private sources.

Rail Upgrade

To make the national transporter futureready the government plans to spend Rs 2.4 lakh crore on upgrading railway infrastructure, of which a large chunk of the amount will be spent on laying new railway lines, doubling existing ones, and purchasing rolling stock. This capital expenditure support for the railways in the next fiscal year is 50% higher than the Rs 1.59 lakh crore allocated in the revised estimates for 2022-23, maintaining the trend of higher allocation for Indian Railways. The latest outlay was about nine times the amount earmarked in 2013- 14. This move to boost the railways will help in getting more indigenously developed Vande Bharat trains into the system and in the procurement of freight wagons.

Infra Mutual Funds Set for Bigger Returns

 The Finance Minister has included infrastructure and investment as the seven important priorities of the government in FY 2024. Mutual fund managers say that this can be good news for infrastructure funds. Currently, there are 17 mutual fund schemes that invest in the infrastructure sector. Toppers in this category have offered 13-19% returns in one year. Moreover, private sector investments will follow, which will make this cycle last longer. Companies in the infrastructure space may witness a pickup in order inflows and earnings momentum is likely to remain strong. The government has also focused on new initiatives like green hydrogen and energy storage through budgetary allocations. Infra-structure funds that have higher weightage of these sectors offer the best opportunity to benefit from this theme which is expected to remain strong for the next 3-5 years.

Prompting Private Players

By setting up the infrastructure finance secretariat to assist all stakeholders with more private investment in infrastructure, the government has actively encouraged the PPP model, inviting the private sector to take lead. The secretariat will assist all stakeholders with more private investment in infrastructure, including railways, roads, urban infrastructure, and power, which are predominantly dependent on public resources. Along with this, a Harmonised Master List of Infrastructure will be reviewed by an expert committee for recommending the classification and financing framework.

Giving Wings to Aviation

As part of the UDAN Scheme that aims to lend further impetus to the aviation sector, fifty additional airports, heliports, water aerodromes, and advanced landing grounds will be revived to improve regional air connectivity. India has become the third-largest aviation market in the world. These budget provisions build on the government's National Infrastructure Pipeline (NIP) combined with other initiatives such as 'Make in India' and the production-linked incentives (PLI) scheme to augment the growth of the infrastructure sector.

Infra Investment Trusts Get Teeth

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have evolved to play an important role in real estate and infrastructure financing ever since their introduction in 2014. They have become an important channel to attract foreign investment in the real estate and infrastructure sector. Keeping this in mind, in the budget for 2023, income previously not taxable by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) was included in the taxation bracket, which was earlier exempted. Meanwhile, market regulator SEBI (Securities Exchange Board of India) has proposed to allow REITs and InvITs to issue depository receipts to provide foreign investors an opportunity to participate in the units of Indian emerging investment instruments. This will be beneficial for foreign investors as depository receipts (DR) avoid the need to trade directly with the Indian stock exchange.

CapEx Boost = Multiplier Effect

Another aspect of the greater budgetary support to infrastructure would be its multiplier effect, apart from making additional expenditure on green transition. Top Indian companies, including Larsen & Toubro, Siemens, Thermax, HCC, and the Tatas, can expect a surge in their order book. Government-led capex in infrastructure will lead to private sector companies increasing their capacity to meet demand. These companies could be experiencing capacity utilisation inching up above the 75 percent level and would have to increase their capacity to meet the growing demand from the railways, roads, and infrastructure sectors. This (infra push) will lead to a surge in demand for steel, cement, railway wagons, and auto products like trucks and tractors. The expansion in the railway network in the country for example, will translate into increased usage of steel and help enhance higher domestic crude and finished steel production.

Tackling Global Headwinds

Headon In perspective, this focussed approach on infrastructure upgrade by the government assumes significance at a time when the global economy is facing headwinds and the government has been firm on supporting domestic economic activity by maintaining the capex support. The infrastructure sector has seen some major developments, investments, and support from the government in the recent past. In September 2022, the government approved rail-cum-road bridge across the Brahmaputra river near the existing Saraighat bridge at Guwahati at the cost of Rs 996.75 crore (US$ 122.27 million). In August 2022, the foundation stone of six NH projects worth Rs 2,300 crores (US$ 287.89 million) were laid at Indore, Madhya Pradesh. FDI in construction development (townships, housing, built-up infrastructure, and construction development projects) and construction (infrastructure) activity sectors stood at US$ 26.22 billion and US$ 28.64 billion, respectively, between April 2000 and June 2022.

Other Growth-Spurring Strategies

The Budget has also revised the direct tax slabs to support consumption activity, especially among the Indian middle class, a no mean feat, as the government has maintained its fiscal deficit target of 6.4% of GDP for FY23 and intends to reduce this to 5.9% in FY24, thereby sticking to its path of fiscal prudence. The vision to develop both India and Bharat through seven distinct focus areas - the Saptarishi model - is progressive and pragmatic and strategically focuses on infrastructure investment, green growth, agriculture development, and modernisation, youth skill enhancement, financial literacy, and tourism. The Budget has put India on the path to becoming the world champion, all set to score goals on infrastructure development, consumption, and inclusion.

To recap, the government has administered a booster dose to the infrastructure sector in the following manner:

·         The government has been consistent over the years in emphasising enhanced public work as the key route to prime the economy. Direct capital investment by the Centre is complemented by the provision made for the creation of capital assets through grants-in-aid to states.

·         There is focus on decarbonisation (with 100% rail tracks to be completely electrified); greater expected freight movement; and the new breed of passenger trains.

·         The allocation for the Ministry of Road Transport and Highways has seen 10 percent jump over the budgetary allocation of Rs 1.99 lakh crore made in the Budget for 2022- 23.

·         A Rs 10,000 crore per annum contribution to a newly set-up Urban Infra Development Funds. This has been a longstanding demand of urban economists, bolstered recently by two reports from the World Bank and the RBI, flagging the poor state of urban finances.

·         With the National Green Hydrogen Mission getting an outlay of Rs 19,700 crores, this Budget also sets aside Rs 35,000 crore to "priority fund" green-energy transition. An availability-gap scheme has been proposed to encourage fresh initiatives in battery storage systems and pump storage. A significant investment of Rs 20,700 crore has been targeted for the generation and evacuation of solar power from Ladakh.

·         The substantial 66% increase in allocation for the Awas Yojana (Rs 79,000 crores) is in order as a desirable social objective to accomplish having a roof over every Indian's head.

·         The Budget seeks to deepen the penetration of air connectivity. The rejuvenation of 50 airports, heliports, water aerodromes, and advanced landing grounds will be a good carry-forward of an ongoing objective.

·         To tackle the slowdown of capital expenditure by states in the first nine months of this fiscal head-on, Rs 1.3 trillion has been set aside as 50-year interest-free loans, but rightfully has some caveats on where it should be spent. More importantly, this facility has to be used up in FY24.  

·         An interesting twist has been engineered to push power sector reforms (read discom reform). While states have broadly been allowed a 3.5% fiscal deficit on state GDP, it is now mandated that 0.5% of this has to be used exclusively for this.

·         Logistics, connectivity, and multi-modalism have seen pathbreaking platforms like Gati Shakti and the National Logistics Plan. Keeping with this, Rs 75,000 crores has been earmarked for 100 transport connectivity projects.

(The author is a Delhi-based senior journalist. He can be reached at rajivtheodore@gmail.com)

Views expressed are personal.