Infrastructure Sector – Budget 2019

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TOPIC: General Studies 2

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
• Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In 2018, India ranked 44th out of 167 countries in World Bank’s Logistics Performance Index (LPI) 2018.

Budget 2019

Two king-sized numbers stand out in Nirmala Sitharaman’s budget: Rs 100 lakh crore and Rs 50 lakh crore. The numbers — estimates of investments required for infrastructure development across the country and the railways, respectively — suggest the government is now willing to make enough space for private players who can bring in the money. 

Overview

• Rs 100 lakh crore (roughly $1.45 trillion) is needed for infrastructure development across the country in the next five years. The government would have to bring in Rs 20 lakh crore a year to meet this target. The Economic Survey, presented a day before the budget, had said the country has been able to put in only $100-110 billion (Rs 6.8-7.5 lakh crore) annually into infrastructure when it needs to pump in $200 billion (Rs 13.6 lakh crore). 
• Transportation infrastructure and allied services are critical growth engines for propelling India’s rise as an economic superpower. While the public sector has played a dominant role in investing in infrastructure creation, the government will need increased private sector participation to supplement the rapidly growing industrial demand for a modern and robust transportation and logistics network at par with developed countries.
• Projects such as industrial corridors, DFC, Bharatmala, Sagarmala and UDAN schemes will continue to improve connectivity and increase competitiveness. Road corridor project Bharatmala, port-linked industrialization plan Sagarmala and UDAN will help in bridging the rural-urban divide and improve transport infrastructure.

Setting up of a panel

The private sector, which contributes one-third of the investment into the core sector in India, needs to be cajoled a lot to ensure a flood of money comes in. The FM has proposed to set up a panel to do the job.  

Roads:

• The government plans to restructure the national highways programme to create network of highways grid of a desirable capacity for better connectivity.
• The government has set an investment target of ₹80,250 crore for phase three of the Pradhan Mantri Gram Sadak Yojana, under which the government wants to build 1,25,000 km of village roads. The earlier phases of this scheme led to the construction of 30,000 km of village roads with green technology.
• Budget 2019 saw for the first time, government’s intent to have electric mobility by 2030. New India will drive on Electric Vehicles with renewables becoming a major source of energy supply,

Waterways:

• The government envisions using rivers for cargo transportation, a move that will decongest roads and railways.
• Cargo movement in Ganga will increase four times in four years with the creation of transit hubs at Varanasi, Sahigbanj and Haldia.

Railways

Railways will be encouraged to make investments and expand network in suburban areas.

• Railway infrastructure will need investment of ₹50 lakh crore between 2018 and 2030 –Public Private Partnerships (PPP) will be used to unleash faster development and delivery of passenger freight services.
• Launch of station modernization programme 
• Replacing walking inspection with automated inspections, upgradation of track management system into a dynamic asset maintenance and management system, improved mechanisation of track maintenance organisation across zones and greater use of RCM/CBM and IoT for real time monitoring and predictive maintenance of assets are a few steps,which would go a long way in ensuring safety.
• Introduction of semi high speed trains (such as Train 18 and Talgo) on moreroutes as well as fast tracking station redevelopment programme for key metro cities would go a long way in meeting passengers’ needs as well as aspirations.
• Indian Railways should judiciously invest in track creation to strengthen stressed routes and also open up intrinsically remunerative routes. 
• The government should attract private sector investment in various areas such as station development for effective passenger management and unlocking non-fare revenue, freight terminals for common use mainly through redevelopment of strategic goods sheds, construction of PFT terminals, and owning and maintenance of rolling stock.
• There has been heightened focus on increasing the modal share of railways for the movement of inland freight. Improving network capacity through signalling projects, upgrading loop line infrastructure to enable running of longer trains (2x-4x of current size) and completing ongoing line expansion projects on time would go a long way in improving average speed of freight trains.
• The government should create an effective ecosystem for the Dedicated Freight Corridors (DFCs) to become game changers in freight logistics. Apart from speedy completion of the eastern and western DFCs as well as sanctioning additional 4 DFCs already planned, there is a pressing need to focus on developing enabling ecosystem such as marketing, commercials and operational strategies to optimize utilization of all this new infrastructure.

Aviation

• To bring down the high taxation on aviation fuel – among the highest in the world, the Government could consider bringing aviation turbine fuel (ATF) and other related fuels (used for commercial scheduled/non-scheduled operations and training purposes) under GST.
• To provide a fillip to its marquee Regional Connectivity Scheme to improve air connectivity to remote areas, the Government should provide incentives/budgetary support in terms of promoting use of smaller aircrafts under the scheme, providing additional funds for VGF support under the scheme, and developing airport and seaport infrastructure in Tier-II and Tier-III cities of the country.
• High taxes have led airlines to outsource 80-85% of the country’s $1.4 billion MRO business to international providers. The government must focus on reducing the tax burden impacting the growth of MRO industry by reducing GST rates, and removing instances of tax on certainitems which attract an import duty as well as a GST over and above that.

Logistics:

• There has been a thrust on development of multimodal logistics parks (MMLPs) in the past few years to boost multimodality and integration of logistics services in the country. In addition to the proposal for developing 35 MMLPs across the country, the government has also drafted an MMLP Policy to serve as the guiding document for the development of MMLPs in the country.
• Issues such as regulatory overlap between multiple agencies for MMLP development, acquisition of land for the construction of the infrastructure among others have been impediments to the development process. Some measures that may be undertaken by the government to foster logistics infrastructure development include:
• Setting up and empowering an independent department for Logistics and Trade/ Freight Facilitation. Instead of the present context wheremultiple agencies undertakedevelopment of MMLPs – leading to inefficiency in infrastructure planning and regulatory delays in approvals, this department should act as the nodal agency for providing approvals for all kind of terminal infrastructure, including MMLPs, ICDs, CFSs, PFTs,and logistics parks.
• Delineation of a dedicated land bank for logistics facilities could be considered across all states to streamline and speed up the land acquisition process.
• There is a need to boost private sector participation in logistics infrastructure creation. The focus should also be on developing and operating common user terminals with the government playing a facilitative role for easy access to land, providing road/rail connectivity to the facility, and supporting infrastructure in terms of water, electricity and fuel.
• The availability and adequacy of storage infrastructure across different commodity groups, especially for industrial goods, is a constraint in the country. Also, the lack of minimum quality standards prescribed by a government agency has led to mushrooming of facilities across the country with sub-optimal utilisation. There is scope for prescribing minimum standards/ norms for establishment of quality facilities, ensuring ease of seeking approvals through a single window mechanism, etc.

Focus on “one nation, one grid”

• The government will introduce policy interventions to revive nearly 24GW of natural gas-powered power plants, currently stranded for the lack of natural gas supply. 
• The government will also “examine the performance so far of the Ujwal Discome Assurance Yojana (UDAY), which had been introduced to stabilize the financial bearings of state power distribution companies. 
• The Centre will also look into the electricity tariff policy and tweak it to benefit the sector struggling to sign long-term power purchase agreements with states.

The country has raised ₹24,000 crore by monetizing public infrastructure, through infrastructure investment trusts, real estate investment trusts and the toll-operate-transfer scheme of the National Highways Authority of India. To boost investment, the government will encourage foreign portfolio investors to invest in infrastructure debt funds, introduce credit default swaps for the infrastructure sector, deepen the corporate bond market, and encourage equity investment by non-residential Indians.

Liquidity is key

• Emphasis on creating liquidity and capital raising is welcome. Given the global headwinds that India faces due to trade wars and the like, and the slowing domestic economy, liquidity is key to pump-priming the economy. Bank capitalisation of ₹70,000 crore is timely and much-needed, given that the investment cycle is showing green shoots as per the Economic Survey. NBFCs that play such an important role in the unbanked sector clearly need liquidity solutions.
• The initiative to provide 10% first-loss guarantee to banks for six months against portfolio purchases from NBFCs is a positive initiative. Given that the loan maturity for NBFC is over two years, the guarantee period should cover the loan tenure rather than just six months.
• Deepening the bond market is a step in the right direction. This reduces corporate’s dependence on banks for the corporate sector. Opening up the economy to global funds in pension, sovereign wealth and venture capital will help broaden the investor basket.
• Quality of life for all is another positive in the Budget. The target of two crore affordable houses by 2022, along with drinking water, electricity and gas for all is a much-needed infrastructure that has multiple benefits.

Conclusion

The budget’s focus on comprehensive plans and blue prints for various infrastructure plans/ grids is a welcome one – especially in the context of: considering systemic trade-offs and development of economic and efficient infrastructure, and involving private sector in this area in a bigger way on a long-term basis

Fresh PSU bank recapitalisation of Rs 70,000 crore will be a big positive for the banking ecosystem and it came as more than a pleasant surprise. This will go a long way in terms of getting lending back on track to stimulate growth in core sectors like Infrastructure. 

For the government, the big challenge would be to walk the talk and recreate a PPP environment that encourages the private sector. This would probably be the only route for Modi government 2.0 to come closer to achieving the two big budget numbers. 

Note:

• India and Japan have joined hands for infrastructure development in India’s north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
• The vote-on-account is an approval, which the government seeks from the parliament for essential spending for a limited period.

Must Read: Infrastructure and North-East

Connecting the Dots:

1. How do infrastructure projects strengthen a nation’s geostrategic standing? Examine in the light of strategy adopted by China and India’s response to it.