Boost infra?

If there is one sector where the Budget has surpassed even the five-year plans of the pre-2014 era in terms of long-range planning, it is infrastructure. The finance minister’s speech has set itself the task of laying out the path for a big public investment boost for modern infrastructure, readying the country for completion of hundred years of Independence in 2047.

To be sure, the Budget is not the first policy document to focus on this, as it has largely borrowed the idea from the Prime Minister GatiShakti programme announced in October 2021. The Budget speech said that the GatiShakti programme will be the centrepiece of an infrastructure push. The programme is driven by seven engines: roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. While the GatiShakti programme lays out a 25-year-long vision, the Budget has set some concrete targets for the next fiscal such as expansion of the national highways network by 25,000 kilometers in 2022-23, awarding of contracts for four multimodal logistics parks in the public-private partnership mode, and rolling out 400 Vande Bharat trains over the next three years.

To be sure, the PM GatiShakti plan is not as much about the Centre funding these projects via budgetary allocations. It is more about the Centre bringing synergy in infrastructure development in the country going forward to unleash what are described as the economies of scale. The Budget speech makes it clear when it says that “the (GatiShakti) approach is powered by Clean Energy and Sabka Prayas – the efforts of the central government, the state governments, and the private sector together – leading to huge job and entrepreneurial opportunities for all, especially the youth”.

This, when read with the fact that the Budget speech talks about floating sovereign green bonds to attract foreign capital to fund projects for mitigating the climate crisis and finding “innovative ways of financing” infrastructure projects suggests that India could see major activity by both domestic and foreign capital in the infrastructure sector, even as public investments do much of the heavy lifting.

There are two key areas where the budget’s treatment of the infrastructure sector is different from the past.

One, the GatiShakti progamme takes a much broader view of the infra sector including things such as logistics parks and building an interface which focuses on interoperability of various modes of transport. This is in keeping with the government’s larger plans to monetise brownfield assets (which can be utilised to create such facilities) which was announced in the last Budget. Two, there is also an attempt to make the new infrastructure projects targeted in their approach such as the plans for using the railway network to facilitate better transportation of agricultural products under the “One Station, One Product” scheme to help local business and supply chains.

The Budget also stresses on the importance of making infrastructure projects financially viable. This is one sector which led to pile up large amount of bad loans in the banking system in the last decade. The speech strikes a note of caution on this issue. “For financing infrastructure needs, the stepping-up of public investment will need to be complemented by private capital at a significant scale. Measures will be taken to enhance financial viability of projects including PPP, with technical and knowledge assistance from multilateral agencies. Enhancing financial viability shall also be obtained by adopting global best practices, innovative ways of financing, and balanced risk allocation.” The approach, to be sure, could have both its hits and misses. While ensuring that private investors in the infrastructure sector are asked to maintain a higher equity to debt ratio could be an insurance against future stress on the banking system, an overemphasis on making projects attractive for private players could result in higher user charges.

The Budget also talks about revamping the human resource pool which is responsible for executing large infra projects. “With technical support from the Capacity Building Commission, central ministries, state governments, and their infra agencies will have their skills upgraded. This will ramp up capacity in planning, design, financing (including innovative ways), and implementation management of the PM GatiShakti infrastructure projects.”

Expert have praised the infra focus in the Budget but also pointed out that its benefits will only accrue in the long-term horizon.