Neethu Nair and Aiswarya Krishnan

Image source: Money Control

The Union finance minister in her Budget speech reiterated the government’s commitment to Rs 103 lakh-crore of investment for the infrastructure sector, as underlined in the National Infrastructure Pipeline (NIP).

Earlier, the Economic Survey 2019-20 had noted that the key challenge ahead for infrastructure is to step up annual investment so that lack of infrastructure does not become a handicap for the Indian economy, which is projected to become $5 trillion by 2024-25.

While presenting the Budget 2020, the FM, Nirmala Sitharaman, highlighted that the focus on infrastructure for economic development is key to ease of living for citizens.

The Budget put a premium on accelerated economic growth by investing a total of 1.70 lakh crore in the transport sector, which is 8 percent higher than the previous year’s Budget figure. The government proposes to construct 9,000 km of economic corridor and three expressways, including Delhi-Mumbai expressway by 2023, in spite of the reduced road construction rates.

The Budget also proposed higher commercialisation measures to raise resources for NHAI through FASTags and monetising 12 lots of highway bundles of over 6,000 km before 2024. There was no mention of the Bharatmala Scheme in this year’s Budget speech.

As for the railway sector, cost optimisation strategies have been adopted. Redevelopment of four railway stations and implementing 150 passenger trains through the PPP model is another highlight. The project status of redevelopment of Habibganj and Gandhinagar railway stations, which was expected to be completed this year, did not find a mention in the speech. The Centre proposes 20 percent equity for the Bengaluru Suburban Transport project.

The government proposes to corporatise one major port. Sitharaman also emphasised on the criticality of the inland waterways through the completion of Jal Vikas Marg.

Considering the difficulties faced by the Sagarmala project due to lack of funds and participation of private players, the proposal  for achieving connectivity of Dhubri-Sadiya, which is 890 km apart, by 2022 sounds too ambitious.

In order to promote economic activity, ‘Arth Ganga’ plans have been conceptualised. This time also, the Budget focussed on the Udan Scheme targeting 100 more airports by 2024.

This year’s Budget allocates ₹22,000 crore for the power and renewable energy sector. Large solar power capacity is to be set up alongside rail tracks on land owned by the Railways.

Keeping in line with the government’s commitment to provide electricity to every household, the Budget also stressed on the need for urgent reforms in the distribution sector through smart prepaid metering and facilitating consumer freedom to choose suppliers and rates. However, no mention was made regarding the revival of the much touted UDAY scheme which is yet to meet its stated objectives of ensuring financial health and operational efficiency of India’s debt-ridden power distribution companies (discoms).

According to the FM, the open acreage licensing policy in the Oil & Gas sector was a success. The National Gas Grid is set to be expanded from 16,200 km to 27,000 km. This seems more like a scaled-down version of the 2014-15 Budget promise of a pipeline length of 30,000 km. However, the only allocation to the gas grid is for Phulpur Dhamra Haldia Pipeline Project and this is close to half of the previous year’s allocation.

The good news is that the Budget stresses on the job creation potential of infrastructure through the special thrust by the National Skill Development Agency on infrastructure-focussed skill development opportunities. On the flip side, the Budget speech maintains an uneasy silence on the status and the allocation for major projects announced in the past like Smart Cities Mission, UDAY scheme and the like.

A key drag in the infrastructure sector has always been stalled projects. Investment is key hurdle here and under such a situation, the infrastructure finance reforms need to go beyond the Rs 22,000 crore allocated as equity support to two government-owned infrastructure companies.

Given the long term capital requirement for infrastructure projects as well as the fact that most of the implementation happens at state and local levels, innovative financing mechanisms suitable to the local political economy need to be tapped into to fulfil the vision proposed in the NIP.

More often than not, projects are stalled for reasons beyond finance. A robust enabling policy environment with optimal risk allocation between public and private sector entities, a mechanism for project clearance, adherence to international contracting standards and institutionalised procedure for dispute resolution are crucial steps to reinvigorate the infrastructure sector.

This article was published in Money Control on February 1, 2020 click to read

Neethu Nair is Assistant Manager- Communications at Centre for Public Policy Research (CPPR), Kochi. Aiswarya Krishnan is Project Associate, CPPR- Centre for Urban Studies. Views expressed by the authors are personal and need not reflect or represent the views of Centre for Public Policy Research. 

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