I’m sure you enjoyed reading the first part of our Budget Series in which we detailed how the Government plans to raise finances through divestment and privatization. In the second part of this series, we’ll take a look at how the Government plans to “build” a new India, quite literally.
“You can’t create a new world order using old ideas”
As rightly quoted above, creating a new India will require new approach, new ideas and adding on to existing ones. The FM, no doubt, continued with traditional (and necessary) measures for infrastructure development such as outlays towards roads, highways, ports, dedicated freight corridor and railways. However, a lot of emphasis was also laid on clean water, sanitation, healthcare and education. Additionally, it was proposed to create a Development Finance Institution, a Government owned body (for now) which would act as an enabler for infrastructure financing. Realizing that Government would have to do most of the heavy lifting, Capital expenditure target was raised to Rs. 5.54tn for FY22, a growth of 26% yoy over FY21RE.
Let us understand one by one how much the Government plans to spend on each of the infrastructure-related areas.
Leading from the front – Govt Capex-led stimulus for reviving the economy
The Government preferred a capex-led stimulus over a consumption-oriented stimulus. At a time, when the economy is slack and public confidence in spending on discretionary items is low, this seems like the right approach. It marks a change in thought process. Focus in FY21 was keeping alive rural growth so that it could be the engine for economic growth for the nation, given that rural areas were less affected by COVID compared to urban areas. For FY22, the focus shifted to an all-out capital spending to boost overall growth.
Source: Budget Documents
The Old School………
While new ways of boosting the economy were necessary, the traditional ones were not ignored. Allocation to the Ministry of Road Transport and Highways was raised 18% for FY22BE compared to FY21RE. Allocation to Railways Ministry was kept unchanged. Ports will incrementally follow a PPP (Public-Private-Partnership) model of operation. Let us take a look at these areas one by one.
Upgrading Road and Highways, a Core Component of Infrastructure Development
Government plans to award 16,600 km length of roads by FY22 and complete additional 11,000 km of National Highway Corridors. This is expected to boost demand in steel, cement, Commercial vehicles and will generate employment. To further boost road infrastructure, more economic corridors are being planned. Major ones are Madurai-Kollam corridor, Chittoor- Thatchur corridor, Mumbai-Kanyakumari corridor, and upgrading existing Kolkata-Siliguri road.
Source: Budget Documents
Railways
Spending on railways will used for enhancing safety (anti-collision system on high density railway network), introduction of LHB coaches to improve tourist experience and Dedicated Freight Corridor (DFC). Through DFC, Government plans to increase the share of railways in carrying containers from ~30% currently to ~50% by 2030. Railways provide an efficient, safe, cheaper and faster option as compared to roadways. 100% electrification of broad gauge railways will be accomplished by Dec’2023. The target is 72% by end of 2021.
Source: Budget Documents
Ports
Ports will move from self-driven model to a PPP model. The existing owners will own the land and a private entity will take care of operations. Seven projects worth Rs. 20bn will be offered on PPP mode in FY22. This will improve efficiency and competitiveness of major ports.
National Monetization Pipeline
The Budget announced the launch of a “National Monetization Pipeline” for monetization of brown-field infrastructure assets. This includes the following
- Raise Rs. 120bn via NHAI and Power Grid through InvIT.
- Railways will monetize their DFC assets post commissioning
- Monetization of operational road assets from the NHAI, transmission assets from Powergrid Corporation, Oil and Gas pipelines from GAIL, IOCL and HPCL, AAI airports in Tier-II and –III cities, warehousing assets of the Central Warehousing Corporation and NAFED.
- This monetization coupled with DFI can be a game-changer for funding in coming years.
Development Finance Institution
The Budget 2021 outlined setting up of a professionally managed Development Finance Institution (DFI) which will provide funding for long term infrastructure projects. Termed as National Bank for Financing Infrastructure and Development, the DFI will be set up on a capital base of Rs. 20,000cr and a lending target of Rs. 5tn in three years. The agency will be Government owned and will enjoy comfort of Government guarantees, thereby bringing down funding cost. Traditionally, commercial banks have been wary of lending to infrastructure projects given their long term payback structure. DFI can fill this gap and serve as a key financier to the National Monetization Pipeline. The DFI can also access global capital. As examples in history, ICICI and IDBI were set up as DFIs and converted to banks thereafter.
New areas of focus in Infrastructure Development
All the announcements made above pertain to traditional sources of infrastructure which have been in focus for this and all previous Government. No doubt, focus on these aspects is necessary for better infrastructure development, improving efficiencies across bodies, generating employment, spurring growth across sectors and boosting GDP growth. However, the current Budget, while all these facets in mind, also focused on new or hitherto neglected areas for spurring growth. It is not that these are new areas; however, the focus is new.
Clean Water & Sanitation
After announcing the Jal Jeevan Mission (rural) in the previous Budget, the Jal Jeevan Mission (urban) was launched in this Budget with an aim of providing water supply to 4,378 urban local bodies, amounting to 28.6mn household tap connections. Additionally, there is allocation of Rs. 1.4tn towards Urban Swachh Bharat Mission 2.0 to implement complete fecal-sludge management and waste-water treatment, source segregation of garbage, reduction in single-use plastics, and reduction in air pollution by effectively managing waste from construction and demolition activities and bio-remediation of all legacy dump sites.
Source: Budget Documents
Healthcare
A new centrally sponsored scheme called Atma Nirbhar Swasth Bharat was launched with an outlay of Rs. 642bn for six years. The scheme is intended to develop capacities of primary, secondary, and tertiary care health systems, strengthen existing national institutions, and create new institutions, to cater to detection and cure of new and emerging diseases. The COVID vaccination program received an allocation of Rs. 350bn to support the drive and take it to the remotest corners of the country. The total healthcare allocation for India has gone up from 1.2% of GDP five years ago to 1.5% of GDP in FY20. However, this is still much lower than countries like China which spend close to 6% of GDP on healthcare and global average of ~4%. On this account, there is still a lot of catching up to do.
Education
15,000 schools will be strengthened qualitatively to include components of National Education Policy. Rs. 500bn will be spent over five years for creation of a National Research Foundation (NRF) an umbrella body that is expected to fund research across a range of disciplines, from science and technology to humanities.
Summing it up — A push to move up the “human value chain”
- To summarize, the FM took the right step by using its own resources to boost capital expenditure.
- At a time when consumer spending and sentiment is low, it makes sense to loosen its own purse rather than coaxing consumers to do the same.
- Infrastructure development is a long term enabler – for generating employment, improving efficiencies, attracting long term money into the country, improving supply chains and many more.
- It has a domino effect on the economy; one infrastructure project creates demand for cement, steel, power, mining, transportation, etc.
- Add to this, factors such as a renewed focus on healthcare, water, sanitation and education and you have a potent recipe for boosting income levels and bettering quality of human life.
- Just as businesses thrive to move up the value chain, boosting infrastructure development and other related factors help entire populations to move up the human value chain.
- As a country that is looking to emerge as a global super-power, this is the most important ingredient.
With this, we come to the end of the second chapter. Thank you so much for reading till the end.
Read more: How Long-term investing helps create life-changing wealth – TOI.