HOW CAN BUDGET REBOOT INFRA SECTOR IN INDIA?

The Union Budget is an opportunity for the government to establish its vision of how a postpandemic India will look. It will be imperative for the government to showcase its action plan to keep the country healthy, green and on the road to recovery.

The economic context

India may witness one of the worst growth outcomes in FY 2021. In such a scenario, the budget will be an opportunity for the government to provide the necessary impetus to the economy.

Infrastructure underpins the economy

Infrastructure investment is a clear winner for boosting the economy. Transport, digital, utilities, urban and social infrastructure, including health will be the key focus areas. According to the International Monetary Fund, spending 1% more of GDP on infrastructure will increase output by about 0.4% in year one and 1.5% four years later. Infrastructure has been a major focus area for the government as evidenced by the National Infrastructure Pipeline, covering a range of infrastructure projects across sectors such as roads, railways, ports, airports, urban, power, telecom, etc. Given the total outlay envisaged in the National Infrastructure Pipeline is INR 110 trillion over five years, the Central Government’s budgetary spend is likely to be ~20% in FY 2021-2022.

We anticipate the momentum to continue and infrastructure to receive a major push this year as well to revive demand in the economy. Creating new infrastructure and upgrading the existing infrastructure will be key focus areas. Sustainable development of infrastructure will be given due emphasis, including clean and affordable power generation and redevelopment of railway stations is expected to be fasttracked. Higher penetration of asset monetisation op

tions, such as InvITs, TOT, securitisation is likely to be enabled. Given the fiscal challenges resulting from COVID-19, private capital will be particularly important for closing the infrastructure financing gap.

This is an opportune time to develop India as a global manufacturing hub, as manufacturers look to move out of China. The government will also focus on ease of business, including land-related approvals, other clearances, labour legislations, etc. The “Make in India” initiative and “Atmanirbhar Bharat” initiative are likely to develop a holistic ecosystem for manufacturing.

A significant expectation is the announcement of a development financing institution (DFI). While it was mentioned in an earlier budget by the Finance Minister, not much progress has been made on this front. The creation of such a DFI will send a strong signal about the intentions of the government for infrastructure sector and simultaneously, give access to efficient capital for infrastructure funding. The DFI will have a larger risk appetite than banks. Further, the technical support that the DFI may extend will expedite infrastructure development.

The writer is Partner - Strategy and Transaction, Infrastructure & Government and Public Sector, EY