India Economy

It’s time to implement Budget goals

Sameer Bhatia | Updated on January 12, 2018 Published on February 12, 2017

Earmarking more funds for infrastructure is welcome. But execution and innovative financing will be critical

With the Union Budget done and dusted, it would be worthwhile to pause and think how it will impact India’s infrastructure story and what more can, and should, be done.

The Budget outlays an integrated infrastructure spend of ₹3.96 lakh crore on roads, railways, airports and waterways. It does so because the Railway Budget was subsumed into the main Budget for the first time in over nine decades. A third of that spending is earmarked for the Railway Budget, making it the largest ever exercise, and over 8 per cent more than the ₹1.21 trillion earmarked this fiscal.

That’s par for the course because of the high multiplier effect that such spending would spawn across the construction, cement, engineering goods and heavy equipment sectors.

The next challenge is to bridge a large funding gap, which is expected to be about ₹2 lakh crore after the budgetary support for the coming fiscal. This would require innovative financing solutions. The creases around public private partnerships (PPP) need to be ironed out, and mobilisation of an infrastructure fund should be hastened.

On railways, the budget focusses on transforming safety, operational efficiency, cleanliness and reporting. That’s a salutary departure from the traditional focus on adding railway tracks, trains, and stations.

In this context, the proposed creation of a ₹1-trillion safety fund is indeed constructive. How it will be structured and utilised would be the key. We saw the launch of the National Investment and Infrastructure Fund (NIIF) and the National Clean Energy Fund (NCEF) earlier, but these aren’t the proven templates for raising and deploying large-scale capital.

Therefore, it’s important that the government charts out a structured strategy and allocation plan for the fund so that it becomes a reliable recourse to address challenges in financing infrastructure projects.

The transport segment seems to be a strong pivot of the Budget’s spending strategy — and the theme is seen in the introduction of multimodal logistics/transport plans, coastal connectivity for ports, and integrated transport solutions for commodities. Each of these will need a detailed execution blueprint that calls for State-wise and inter-State planning of routes, best-fit solutions, funding, and also leveraging of global expertise. Work segments will need to be allocated to bodies/ministries that can do justice to the multi-sectoral motivations and plans.

To bridge the financing gap to some extent and improve the customer experience at airports, the Budget talks of monetisation of land around airports, and PPP for operation and maintenance of airports in Tier II cities.

Energy security

As for energy security, there is an attempt to march towards goals leaning significantly on sustainable sources. Several initiatives including adding 20 GW solar capacity, reducing customs duty on liquefied natural gas (LNG), 100 per cent rural electrification, duty reductions on renewable energy equipment, etc, underscore a paradigm shift in energy planning. But all of these will require significant rethink, given some sticky barriers that they face. For example, to ensure sustained growth in solar installations, it’s necessary to ease the financial crunch at distribution companies, while rural electrification would require better mechanisms for monitoring and implementation. To structurally improve LNG availability, we need a robust plan on terminals, pipelines and distribution. To boot, the policy, regulatory and bid award mechanisms are yet to see reforms.

While there was no specific emphasis on marquee themes of the previous Budget — AMRUT and Smart City Mission — there is a lot of focus on the hinterland. But to be efficient, investments in the rural sector need scrupulous ecosystems and fund transfers must unerringly reach the people they are meant for. Urban infrastructure also needs policy continuity and extended focus, which is expected to remain. Most importantly, while the infrastructure ambitions are admirable, wherewithal is literally a trillion-dollar question. CRISIL’s calculations show that about ₹43 lakh crore need to be spent in the five years to 2020 to meet India’s infrastructure build-out needs.

Given the asset quality issues in the banking sector, it’s imperative that steps be taken to deepen India’s corporate bond market, which can then cobble up significant funding and encourage innovations such as credit enhancement, takeout financing. While steps in this regard don’t need the Union Budget, it’s important that the government is seized of this gigantic requirement and proactively engenders facilitation.

In a nutshell, the goals have been pinned to the wall and look well-intentioned, well-thought-out. What we need next is exemplary execution and innovative financing. That will determine if India takes the big leap or bumbles along. Given the imperatives of the social compact, it’s time to hit the ground running.

The writer is President, CRISIL Infrastructure Advisory

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