A Shot in the Arm

Budget 2021-22 aims to revitalise the infrastructure sector

The Union Budget 2021-22 has been hailed as growth oriented, with a focus on trying to revitalise the infrastructure sector. In order to augment the country’s infrastructure, the National Infrastructure Pipeline (NIP) has been expanded to include 7,400 projects. The government is committed to achieving the NIP targets over the coming years, and has proposed steps to meet the funding requirements. It has allocated Rs 5.54 trillion for infrastructure development for 2021-22, which is a 35 per cent increase over the previous year’s budget estimate. The proposal for the creation of an infrastructure-focused development finance institution with a capital base of Rs 200 billion has been welcomed. The long-awaited move will catalyse infrastructure funding. Further, the government has enabled debt financing of infrastructure investment trusts (InvITs) and real estate investment trusts (REITs), which will accelerate the government’s asset monetisation drive. Private investments in infrastructure are being encouraged through the monetisation of public assets for operations and maintenance, and public-private partnerships (PPPs).

Roads

The government has provided an enhanced outlay of Rs 1.18 trillion for the Ministry of Road Transport and Highways, of which Rs 1.08 trillion is capital outlay. As per the government’s annual financial statement, the roads and bridges sector has been allocated Rs 1.01 trillion under the Union Budget 2021-22. Under the Bharatmala Pariyojana, over 13,000 km of roads have already been awarded at a cost of Rs 3.3 trillion, of which 3,800 km has been constructed. By March 2022, the government aims to award another 8,500 km and complete an additional 11,000 km of national highways.

Railways

A record sum of Rs 1.1 trillion has been allocated for the railways, of which Rs 1.07 trillion is capital expenditure. Indian Railways (IR) has prepared the “National Rail Plan for India 2030” to create a “future-ready” railway system by 2030. As part of the government’s safety initiatives, high density networks and highly utilised network routes of IR will be provided an indigenously developed automatic train protection system, which promises to eliminate train collisions due to human error. Further, the government aims to significantly reduce the cost of logistics. To this end, it is expected that the Western Dedicated Freight Corridor (DFC) and the Eastern DFC will be commissioned by June 2022. The government will also undertake future DFC projects, namely, the East Coast Corridor from Kharagpur to Vijayawada, the East-West Corridor connecting Bhusaval, Kharagpur and Dankuni, and the North-South Corridor from Itarsi to Vijayawada. Detailed project reports will be undertaken in the first phase.

Urban infrastructure

In a bid to increase the share of public transport in urban areas, a new scheme will be launched, at a cost of Rs 180 billion, to support the augmentation of public bus transport services. The scheme will facilitate the deployment of innovative PPP models to enable private sector players to finance, acquire, operate and maintain over 20,000 buses. With regard to the metro rail, over 700 km of conventional metro is currently operational and another 1,000 km of metro and regional rapid transit system is under construction in 27 cities. Two new technologies, MetroLite and MetroNeo, will be deployed in Tier II cities and peripheral areas of Tier I cities as cheaper alternatives to metro rail systems that provide the same experience, convenience and safety.

Power

A Rs 3.06 trillion, five-year scheme to reform the power distribution segment has been announced. The major features of the proposed scheme include prepaid smart metering, feeder separation and upgradation of systems. Further, a framework will be put in place to allow consumers to choose from among multiple distribution companies. To give a further boost to the non-conventional energy sector, an additional infusion of Rs 10 billion in the Solar Energy Corporation of India and Rs 15 billion in the Indian Renewable Energy Development Agency have been announced. The launch of the Hydrogen Energy Mission in 2021-22 for generating hydrogen from green power sources has also been proposed.

Ports and shipping

The Ministry of Ports, Shipping and Waterways has received an allocation of Rs 17.02 billion (budget estimate). This is lower than the budget estimate of Rs 18 billion and higher than the revised estimate of Rs 14.34 billion for 2020-21. Of the total allocation in 2021-22, Rs 4.01 billion has been allocated for the Sagarmala programme, Rs 6.24 billion for inland water transport and Rs 1.35 billion for the development of ports, among other segments. The shipping and shipbuilding segments have received a total allocation of Rs 1.01 billion. It has been proposed that major ports should be managed by private parties. To this end, seven projects worth over Rs 20 billion will be offered on a PPP basis in the year 2021-22.

Oil and gas

An independent gas transport system operator will be set up for the facilitation and coordination of common carrier capacity across all natural gas pipelines, on a non-discriminatory, open access basis. Further, the government aims to add 100 more districts to the city gas distribution (CGD) network in the next three years. A gas pipeline project will also be taken up in Jammu & Kashmir.

Telecommunications

An amount of Rs 142 billion has been allocated for boosting the telecom infrastructure of the country. This will entail completing an optical fibre cable-based network for the defence services, rolling out broadband in 220,000 panchayats and improving mobile services in the Northeast. On the revenue side, the government expects a revenue collection of Rs 539.86 billion from the telecom sector in 2021-22, a 60 per cent year-on-year increase over the Rs 337.37 billion collected in 2020-21. As per industry experts, this high revenue collection estimate seems to have factored in the upcoming 4G spectrum sale in March 2021, which is slated to garner around Rs 480 billion.

Focus on asset monetisation

The budget has laid special emphasis on the monetisation of assets to recycle capital. Thus, a National Monetisation Pipeline of potential brownfield infrastructure assets has been proposed. An asset monetisation dashboard will be created to track progress and provide visibility to investors.

The National Highways Authority of India (NHAI) has sponsored an InvIT, which is expected to attract international and domestic institutional investors. Five operational roads, with an estimated enterprise value of Rs 50 billion, are being transferred to the NHAI InvIT. Similarly, transmission assets worth Rs 70 billion will be transferred to an InvIT sponsored by the Power Grid Corporation of India. The Airports Authority of India’s airports in Tier II and Tier III cities will also be rolled out under the asset monetisation programme. IR will monetise DFC assets for operations and maintenance after commissioning.

Ensuring long-term financing

The government has proposed the creation of an infrastructure-focused development finance institution (DFI) with a capital base of Rs 200 billion. The aim is to have a lending portfolio of at least Rs 5 trillion for the DFI in three years. Meanwhile, debt financing of InvITs and REITs by foreign portfolio investors will be enabled through suitable amendments in the relevant legislations. It has been proposed that dividend payments to REITs/InvITs be made exempt from tax deducted at source (TDS).

In order to incentivise sovereign wealth funds and pension funds to invest in Indian infrastructure, it is proposed to relax some of the conditions for availing of 100 per cent tax exemption that had been introduced in the  previous year’s budget, including those relating to prohibition on loans or borrowings, restriction on commercial activities, and direct investment in entities owning infrastructure.

In sum

Disinvestment and public asset recycling have emerged as important alternative fundraising routes for infrastructure development. The government has approved a policy of strategic disinvestment of public sector enterprises. The policy provides a clear road map for disinvestment in all non-strategic and strategic sectors. The government has estimated receipts of Rs 1,750 billion  from disinvestments in 2021-22. The strategic sale of Bharat Petroleum Corporation Limited, Air India, the Shipping Corporation of India, the Container Corporation of India, IDBI Bank and Pawan Hans, among others, will be completed in 2021-22.

This year’s budget comes as a huge positive for the infrastructure sector, as the government has not only increased the overall capital outlay for it but has also attempted to address the funding challenges associated with infrastructure projects.

Ishita Gupta

GET ACCESS TO OUR ARTICLES

Enter your email address