Presenting the Union Budget 2021 was not short of a mammoth task. At present, the flailing Indian economy marked by contracting GDP required a push from the government. The Finance Minister has rightly taken a leaf out of Keynesian economics for the same. The push to infrastructure and capital expenditure is vital, given the multiplier effect of the infrastructure spending on economic growth. This year’s budget has witnessed a dramatic increase in expenditure levels and a massive hike in measures for privatisation. It is, therefore, a step in the right direction.
Budget 2021 rests on six pillars: Health and well-being, physical & financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government-maximum governance.
Some bold steps such as a 34% year-on-year increase in infrastructure Capex to Rs 5.54 lakh crore have been taken by the government. Massive augmentation in capital expenditure on roads and railways has been announced while the National Infrastructure Pipeline (NIP) has been enlarged to cover 7,400 projects. This will require a major increase in funding, not only from the Central Government but the states as well as the private sector. The government’s commitment to delivering NIP through the creation of institutional structures, monetising assets and enhancing increase in infrastructure for the states’ budgets is commendable.
Setting up of a professionally managed Development Finance Institution (DFI) will be critical for financing greenfield infrastructure projects, efficient implementation of the NIP and the immediate launch of the National Monetisation Pipeline. The government has allocated Rs 20,000 crore in the budget to capitalise the DFI. The National Monetisation Pipeline and Asset Monetisation Dashboard will provide enabling mechanisms for asset monetisation. Enabling debt financing of InVITs and REITs by making suitable amendments to the legislation will attract funds in the infrastructure and construction sectors.
The transport sector has also received a fair share of allocation in the budget with new economic corridors, including freight corridors being planned to boost highways and railway sector.
Railways have seen a significant allocation in this year’s budget with a total allocation of Rs 1.1 lakh crore, mostly on the capital expenditure including the railways' corridors. National Rail Plan 2030 to create a future-ready railways system will be critical for boosting the railways sector and bringing investment into the sector. The higher allocation for the railways sector will be critical for the smooth implementation of freight corridors, reducing the logistics cost in the country which is fundamental to enable ‘Make in India’ campaign. The focus on electrification of rail lines, safety and passenger experiences will accelerate the development of the country.
The government has allocated Rs 1.18 lakh crore for the roads and highways sector and Rs 18,000 crore for public transport in this year’s budget. About 8,500 km of road and highway projects are being planned to be awarded by March 2022 including the new road corridor projects. The focus on the development of economic corridors will enable contiguous manufacturing activity.
A coordinated approach for execution along with the above-proposed initiatives will further boost the infrastructure sector. Reforms to ease foreign investment, particularly participation of the pension funds in the infrastructure sector such as the issuance of zero-coupon bonds and relaxation regarding commercial activities are critical. Supporting the budget with a credible plan to achieve the targets of Make in India and Atma Nirbhar Bharat mission and a religious execution will make the proposed initiatives see the light of the day and set the economy on the path of a turnaround.
(with inputs from Gunjan Jain, Manager)
The author of the article is Partner- Strategy and Transaction, Infrastructure & Government and Public Sector, EY India.