Budget lays down plan to invest in infrastructure

Equirus Capital

Hon’ble Finance Minister Mrs. Nirmala Sitharaman has presented her maiden budget with emphasis on infrastructure investment to make India USD 5 trillion economy. India will reach USD 5 trillion economy by 2024 with accelerated development targeted in next 5 years. The budget has laid down plan to invest in building physical and social infrastructure, pollution-free India with green Mother Earth and blue skies, water, water management, clean rivers.

The government intend to invest more than Rs 100 lakh crore in infrastructure sector in next 5 years. The government has recognized the inancing problem. It is proposed to set up high level committee to look into long term financing of infrastructure sector. It is also proposed to increased bond market participation in infrastructure sector. The government is also looking to increase participation by InVit and other long term modes.

The government plans for national grid for electricity, water and gas. These will require huge investment and provide availability to entire nation.

As resource mobilization for infrastructure sector, It is proposed to increase special additional excise duty and road and infrastructure cess each by one rupee a litre on petrol and diesel. This will generate more funds for infrastructure investment.

The sector wise investment and reforms are detailed below:

Railways: The railway sector will spend Rs 50 lakh crore between 2018 to 2030. It is estimated that railway infrastructure would need capital expenditure outlays of around Rs 4 lakh crore per annum. To achieve this, it is proposed to use public-private partnership to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services. Budget allocation of railways sector has been increased from Rs 53,060 crore to Rs 65,837 crore in line with announced investment in railways sector.

Airport: Under UDAN scheme, more than 100 airports are operating in India. The number of aircraft have also increased. To attain self-reliance, India to enter into aircraft financing and leasing market. Proper policy initiatives to be taken to bring Maintenance, Repair and Overhaul (MRO) activities to India resulting in savings in Forex Exchange. The budgetary support for Central Sector Schemes/ projects has been reduced from Rs 9,900 crore (RE) to Rs. 4,500 crore. It seems reduction has been done to increase private sector participation under PPP mode.

Roads: Bharatmala II will be launched to develop state highways. The government has increased its focus on rural roads with 97% villages are connected. It is proposed to create and upgrade rural road with PMGSY-III to upgrade 1,25,000 kms of road length over the next five years, with an estimated cost of Rs. 80,250 crore. NHAI will raise funds through various innovative modes like TOT, bonds and InVIT. The budgetary support has been increased from Rs. 68,563 crore to Rs. 72,058 crore. It has also pushed NHAI to raise more funds from other routes.

Electric Vehicles: Fame II has been rolled out with outlay of Rs10,000 crore. Income Tax deduction is allowed on interest paid for purchase of Electric Vehicle upto INR 1,50,000 per annum.

Power: It is proposed to create National Grid for electricity. It is also proposed to set up high level empowered committee to look into retirement of old and inefficient power plants and address low capacity utilization of Gas based power plants. 35 Crore LED bulbs distribution has led to savings of Rs 18,341 crore per annum. This will be expanded to solar stoves and battery charger in country. The MNRE ministry allocation has been increased from Rs 5,043 crore to Rs 5,131 crore. The Ministry of Power allocation has been reduced from Rs 13857 crore to Rs 11,969 crore for Central Sector schemes/ projects.

Water: It is proposed to create national water ways to increase transportation of man and materials by water leading to reduction in cost and savings in foreign exchange. It is also proposed to set up Jal Shakti Mantralaya integrating all ministries with a target to provide piped water to all rural households by 2024. The Government is also looking to increase investment in water harvesting, water management/ treatment. The budget has provided Rs 3,049 crore for Central sector schemes/projects, Rs 4,311 crore for Centrally sponsored schemes, Rs. 19,994 crore for Centrally sponsored drinking water schemes. The budget has not separately laid out any idea on river linking projects and its allocation.

The Finance Minister has laid down the path for next 10 years infrastructure investment. The Finance Minister has also laid path for more private sector participation in infrastructure investment. However looking at current stretched balance sheet of infrastructure companies, the private sector participation will come from long term capital investors like pension funds, InVit and new avenues.

The article was authored by Equirus Capital.