February 2018

EDITOR Devangshu Datta

Union Budget 2018-19 allocated Rs 5.97 trillion for infrastructure, which is a substantial increase of about Rs 1.03 trillion over the outlay for 2017-18. The finance minister estimated that the country needs about Rs 50 trillion investment in infrastructure to provide an integrated network of roads, airports, railways, inland waterways, etc.

While the budget had allocations across multiple sectors, the focus is clearly on transport. Phase I of Bharatmala has a target of constructing 35,000 km of highways at an estimated cost of Rs 5.35 trillion. Indian Railways received support to the tune of Rs 1.48 trillion for capital expenditure. In addition, there is a focus on border areas with projects such as the Rohtang tunnel, the Sela pass and the Zojila tunnel.

The government targets pushing up the pace of road construction from 27-28 km per day to around 41 km per day. While Bharatmala will require Rs 10 trillion in investments across its two phases, Sagarmala, the maritime initiative, will require another Rs 8 trillion by 2035. A small part of this funding could be met by means of a new road and infrastructure cess of Rs 8 per litre on imported petrol and diesel.

Although UDAN, the aviation scheme to connect smaller centres, was highlighted, and a new scheme to start seaplane services was announced, the allocation for AAI has been reduced from Rs 1.49 billion in 2017-18 to Rs 0.73 billion in 2018-19. AAI will instead raise Rs 40.8 billion from the market.

In telecommunications, the government has allocated Rs 100 billion to the BharatNet project which aims at providing rural broadband connectivity to 250,000 villages and setting up a dedicated defence communications network in order to release spectrum for commercial services. The budget also  announced that 500,000 Wi-Fi hotspots will be set up in villages to enable rural broadband access.

The Smart Cities Mission has selected 99 cities to receive a combined outlay of Rs 2.04 trillion. Projects for smart roads, solar roofs, intelligent transport systems, etc. are being implemented.

Several steps have been proposed to ease access to capital and to monetise existing assets. This is vital since developers find it hard to access capital at reasonable rates due to the bad loans crisis in the banking sector.

The budget has suggested some potential workarounds. For example, NHAI could consider reorganising road assets into SPVs. By using structures such as toll-operate-transfer and infrastructure investment funds, NHAI may be able to monetise these assets better.

In a broader sense, vehicles such as infrastructure investment trusts and real estate investment trusts will be encouraged. The government will also “nudge” corporates to raise funds from the bond market. The finance minister has said that RBI and SEBI will issue guidelines to mandate corporates to raise about one-fourth of their financing needs from the bond market. This will require substantial improvements in both the primary and secondary bond markets, as well as in rating mechanisms, to enable the necessary liquidity.

While these measures are encouraging in themselves, increasing investments is a necessary but insufficient condition for infrastructure development. The old problems of slow clearances and difficulties in land acquisition remain. The government and policymaking bodies will have to find solutions to these issues for development to pick up pace.

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