Need for Fiscal Prudence

Finance minister presents crucial budget amidst economic slowdown

The Indian economy has already gone through two sub-par years of growth. Amidst the stress surrounding this state of affairs, the finance minister unveiled Union Budget 2020-21. Many experts believe that the budget, which is being termed as a farm-oriented one, lacks the much-needed economic stimulus. That said, the budget does reiterate the government’s commitment towards stepping up infrastructure investments. In August 2019, the central government had launched the National Infrastructure Pipeline. The Rs 103 trillion pipeline consists of 6,500 projects across sectors. While budgetary allocations of Rs 220 billion have been earmarked for the power and renewable energy sector, Rs 1.7 trillion has been allocated for transport infrastructure.

A slew of initiatives and measures have been announced for infrastructure sectors. The focus on creation of a network of expressways, development of 100 airports, phasing out of old power plants, public-private partnerships (PPPs) to run railway passenger trains, making MSMEs competitive and promoting smart metering are certainly reassuring moves for the industry. A National Logistics Policy will be released soon, creating a single-window e-logistics market and focusing on generation of employment and skills and making MSMEs competitive.

Investor-friendly measures were the highlight of the budget. Abolishment of the dividend distribution tax will make equity investment more attractive and the proposal entailing 100 per cent tax exemption to sovereign wealth funds on investments made in infrastructure projects is a welcome move as well. The project preparation facility is a good initiative. The creation of an Investment Clearance Cell to provide end-to-end facilitation and support, such as pre-investment advisory, information related to land banks, and facilitating clearances at the central and state level has also been proposed. Proliferation of new technologies is also in the limelight.

Constructive steps…

Railways: More passenger trains on a PPP basis

For financial year 2020-21, a capital expenditure of Rs 1,610 billion has been proposed for Indian Railways (IR), which is only 3 per cent higher than the revised estimate for last year (Rs 1,563 billion). The outlay comprises Rs 702 billion from budgetary support, Rs 75 billion from internal resources and Rs 832.92 billion from extrabudgetary resources. The operating ratio for the year has been pegged at 96.2 per cent.

IR will set up “Kisan Rail” with refrigerated coaches on a PPP basis for transportation of perishable goods to assist farmers.

The budget also proposed setting up of large solar power capacity alongside railway tracks on land owned by IR. Further, the redevelopment of four stations and operation of 150 passenger trains will be done on a PPP basis. The high speed rail corridor between Mumbai and Ahmedabad will be actively pursued and the project is expected to be completed by 2023. Besides, the long-pending 148 km Bengaluru suburban transport project will be executed at a cost of Rs 186 billion. The central government will provide 20 per cent of the equity and also facilitate external assistance up to 60 per cent of the project cost. More Tejas-type trains to connect iconic tourist destinations will also be launched.

Roads: Accelerated development of highways the main focus

The central government has allocated funds amounting to Rs 918.23 billion to the Ministry of Road Transport and Highways (MoRTH) under Union Budget 2020-21, a 10.61 per cent increase over the Rs 830.16 billion revised allocations during 2019-20. Of these allocations, the National Highways Authority of India (NHAI) has been allocated Rs 425 billion (an increase of 15.8 per cent over 2019-20) while Rs 487.59 billion has been allocated for road and bridge works (an increase of 6.3 per cent over the previous year). Besides, the government has proposed undertaking accelerated development of highways, including the development of 2,500 km of access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land-port roads, and 2,000 km of strategic highways.

Meanwhile, the Delhi-Mumbai expressway and two other packages are targeted to be completed by 2023. Work on the Chennai-Bengaluru expressway has been proposed to be started in 2020-21. The MoRTH has also proposed the monetisation of at least 12 lots of highway bundles, spanning over 6,000 km, before 2024. In her budget speech, the finance minister also reiterated that the FASTag mechanism has encouraged the government towards greater commercialisation of highways.

Ports and shipping: Corporatisation of major ports on the cards

The Ministry of Shipping (MoS) has received an allocation of Rs 18 billion (budget estimates) for 2020-21. The allocation is lower than the budget estimate of Rs 19.03 billion and higher than the revised estimate of Rs 15.23 billion for 2019-20. Of the total allocation in 2020-21, Rs 2.97 billion has been allocated for the Sagarmala programme, Rs 6.78 billion for inland water transport, and Rs 1.44 billion for port development, among others. The shipping and shipbuilding segment received greater attention. The segment has received an allocation of Rs 1.51 billion. The allocation is higher than both the budget estimate of Rs 970 million and the revised estimate of Rs 424.3 million for 2019-20. In addition, Rs 37.15 billion has been allocated for public sector enterprises. Of this, Cochin Shipyard Limited has received the highest allocation of Rs 6.5 billion for 2020-21. Meanwhile, the MoS has proposed the setting up of a maritime museum at Lothal, the Harapan age maritime site near Ahmedabad. The government will also consider corporatising at least one major port and its subsequent listing on the stock exchanges.

Civil aviation: Operationalisation of 100 airports on the anvil

Under Union Budget 2020-21, the government has made a budgetary allocation of Rs 37.98 billion for the Ministry of Civil Aviation (MoCA). The funds allocated have increased marginally by 2.6 per cent over the revised estimate of Rs 37 billion earmarked for 2019-20. Of the allocated budget for 2020-21, funds amounting to Rs 4.65 billion have been earmarked for the Regional Connectivity Scheme. Apart from this, funds worth Rs 22.05 billion have been allocated for Air India Asset Holding Limited, the special purpose vehicle formed for taking up the divestment of Air India. An allocation to the tune of Rs 699 million has been made for expansion of connectivity to the Northeast besides funds for purchase of two new aircraft for special extra section flight operation. An investment of Rs 50.26 billion has also been earmarked for the Airports Authority of India. In a bid to ease the strain on existing capacity, the government plans to operationalise 100 additional airports by 2023-24.

Power: Concessional tax rates for electricity generation companies

The net budgetary allocation for the Ministry of Power (MoP) remains unchanged at Rs 158.74 billion under Union Budget 2020-21. The Ministry of New and Renewable Energy (MNRE) has been allocated Rs 57.53 billion for 2020-21 as against Rs 38.92 billion in the previous year, an increase of 47.8 per cent, while the Department of Atomic Energy has been allocated Rs 182.29 billion as against Rs 174.26 billion in 2019-20, marking an increase of 4.6 per cent. Meanwhile, the net budgetary allocation for the Ministry of Coal stands at Rs 8.83 billion for 2020-21, a decrease of 5.5 per cent over the Rs 9.34 billion allocated in the previous year. Further, a budgetary allocation of Rs 44 billion has been earmarked to encourage states to implement plans for clean air in cities with a population of over 1 million.

Under the 2020-21 budget, the finance minister has announced a concessional corporate tax rate of 15 per cent for new domestic companies engaged in electricity generation. In addition, a revision of customs duty rates for electric vehicles and an enabling mechanism to raise the customs duty on imports of equipment such as solar cells and modules is also expected. Further, all states and union territories have been mandated to replace conventional energy meters by prepaid smart meters over the next three years. The budget acknowledges financial stress of discoms and asserts that further reform measures will be taken for the segment. The finance minister has also advised utilities running old and inefficient plants to close such plants if their emission is above the preset norms. Further, the PM KUSUM scheme has been expanded to cover 2 million farmers for stand-alone solar pumps and 1.5 million farmers for grid-connected pumps.

Oil and gas: Reforms to push for transparent price discovery

Union Budget 2020-21 has proposed a capital outlay of Rs 985.22 billion for oil and gas companies for 2020-21, a 4 per cent increase over the revised estimate for 2019-20. According to the expenditure budget document, the exploration and production segment’s overall capital outlay has increased by 7.4 per cent to Rs 520.19 billion in 2020-21 from Rs 484.31 billion in the revised estimate for the current fiscal year. The refining and marketing segment has witnessed a 2.49 per cent decline in capital outlay at Rs 416.54 billion as compared to the revised estimate of Rs 427.22 billion for 2019-20. The petrochemicals sector has also witnessed an increase in capital outlay at Rs 47.54 billion, a 31 per cent jump over the Rs 36.21 billion likely to be spent this fiscal year ending March 2020. Capital expenditure by the Oil and Natural Gas Corporation, Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited, Oil India Limited and GAIL (India) Limited has been pegged at Rs 325.02 billion, Rs 262.33 billion, Rs 115 billion, Rs 90 billion, Rs 38.77 billion and Rs 54.12 billion respectively. The government has allocated Rs 409.15 billion as petroleum subsidy for the next financial year, a 6 per cent increase from the Rs 385.69 billion allocated for the current fiscal year.

In addition, the Ministry of Petroleum and Natural Gas has plans for the expansion of the national natural gas pipeline network to 27,000 km from the present 16,200 km. To deepen the country’s gas market further, reforms will be undertaken to facilitate transparent price discovery and ease of transactions. The national gas grid is proposed to be expanded from the present 16,200 km to 27,000 km.

According to Budget 2020-21, the income of Indian Strategic Petroleum Reserves Limited (ISPRL) will be exempt from taxes on the transaction of crude oil stored in its strategic caverns, provided the company replenishes the removed fuel within three years. Tax changes on ISPRL will be effective April 1, 2020. The budget has also abolished import tax on very low sulphur fuel oil used by ships to reduce costs for local shipping companies. The import tax on calcined petroleum coke, used by aluminium makers to make anodes, will also be reduced to 7.5 per cent from 10 per cent earlier.

Urban infrastructure: Focus on water security for all

The government has announced a central outlay of Rs 500.39 billion for the Ministry of Housing and Urban Affairs (MoHUA) under Union Budget 2020-21. Of the total outlay, while Rs 211.49 billion (42.26 per cent) has been allocated towards capital expenditure, the MoHUA has received Rs 288.9 billion (57.74 per cent) to meet its revenue expenditure for the upcoming fiscal year. The outlay for 2020-21 is higher than the previous year’s planned budget outlay of Rs 480.32 billion (4.18 per cent) and revised outlay of Rs 422.66 billion (18.39 per cent).

The budget has proposed Rs 115 billion for the Jal Jeevan Mission that aims to provide water security for all by 2024. The central government has already approved Rs 3.6 trillion to provide piped water supply to every household. The allocated funds will be used to augment local water resources, recharge existing sources, promote water harvesting, and desalination. Cities with population of over 1 million will be encouraged to meet the objective during 2020-21. Besides, the budget has also proposed comprehensive measures for 100 water-stressed districts. Besides, Rs 123 billion has been allocated for the Swachh Bharat Mission that promotes effective liquid and waste management. The government has decided to begin an open defecation free (ODF)-plus scheme to sustain the current ODF mission. The budget has also proposed starting schemes for liquid and greywater management, solid waste collection, source segregation and processing. It has also proposed the development of five new smart cities in collaboration with states on a PPP basis.

elecom: Data centre parks throughout the country

Under the recently announced budget, the government has allocated Rs 60 billion to the BharatNet programme for financial year 2020-21. Further, fibre-to-the-home connections through BharatNet are set to link 100,000 gram panchayats during the year. On the revenue side, the government expects revenue collections worth Rs 1.33 trillion from the telecom sector in the financial year owing to adjusted gross revenue-related dues. There has been no announcement regarding the rationalisation of levies and taxes currently imposed on the severely distressed telecom sector. Further, it has been announced that Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited will get a combined fund infusion of Rs 376.4 billion, primarily for 4G spectrum and implementation of the voluntary retirement scheme.

Further, the government has reduced the import duty on telecom equipment. Another Rs 80 billion has been allocated for the National Mission on Quantum Technology and Application over the next five years and 550 IR stations are to get Wi-Fi facilities. Further, a policy to enable the private sector to build data centre parks throughout the country has also been proposed.

Unmet expectations and future outlook

The report of the Taskforce on National Infrastructure Pipeline 2019-25 has highlighted a shelf of sector-wise investments to achieve the target of a $5 trillion economy by 2025. While the budget reiterates focus on this pipeline, several industry experts are of the view that the requisite funds to support the execution of these projects need to be efficienty mobilised. The government has tried to focus on the PPP model yet again across several sectors. With this, the government also aims to check the roadblocks to private investment and improve upon the past experience with PPPs. What is required for the future is the institutionalisation of a timebound dispute resolution framework. Creation of a long-term development financial institution for financing of infrastructure projects and a revitalised and balanced PPP architecture is the need of the hour.

Deeksha Soni

 

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