What The Budget Promises On Physical Connectivity And How It Will Be Delivered 

by Prakhar Gupta - Jul 5, 2019 09:49 PM +05:30 IST
What The Budget Promises On Physical Connectivity And How It Will Be Delivered Prime Minister Narendra Modi and Minister of Road Transport and Highways of India Nitin Gadkari. 
  • The government wants to spend hundreds of billions of dollars on infrastructure over the next five years. It will need innovative funding models.

When this correspondent crisscrossed Purvanchal during the 2019 elections, one issue that most voters across castes were factoring in while deciding who they would vote for was infrastructure, or, more precisely, roads. Many of those voting for the Bharatiya Janata Party (BJP) cited better infrastructure as one of the main reasons behind their choice. And even many among those who had decided to not vote for the party out of ‘caste compulsions’ conceded that the Narendra Modi government's delivery on this front was better than others.

Between 2014 and 2019, National Highways spanning nearly 35,000 km were built in the country. In comparison, the Congress-led United Progressive Alliance (UPA) government had added nearly 24,000 km to the country’s national highway network in five years. The speed of construction also increased to 20.5 km per day between 2014 and 2019 from around 13.5 km per day during UPA-II days. During the same period, nearly 2,00,000 km of rural roads were built. UPA-I and II built around 1,62,400 km and 1,85,767 km of rural roads, respectively.

Clearly, BJP’s did relatively better and gained from it.

Identifying this link between infrastructure delivery and electoral outcomes, and to pave the way for India to become a $5 trillion economy, Finance Minister Nirmala Sitharaman made physical connectivity a big thrust of her maiden budget.

Roads and national highways are at the centre of the government’s infrastructure push. Budget allocation for the Ministry of Road Transport and Highways has been increased from Rs 99,322 crore in the last financial year to Rs 1.12 lakh crore. At around 12 per cent, this growth is significant.

For the creation of National Highways Grid of desirable capacity, the government will go for a comprehensive restructuring of National Highways Programme. Among other things, the Centre will focus on helping states develop state road networks under the second phase of the Bharatmala project. And all of this will be done using what the finance minister said were ‘financeable models’.

Budgetary support for the National Highways Authority of India (NHAI) has also been increased marginally from Rs 68,563 crore to Rs 72,058 crore.

However, NHAI’s increased borrowing over the last few years can constrain its ability to deliver. According to rating agency ICRA, formerly Investment Information and Credit Rating Agency of India Limited, NHAI’s debt has risen from around Rs 25,000 crore in 2015 to Rs 1.7 lakh crore in 2019.

Therefore, it is clear that to achieve the stated goals, NHAI will have to look beyond the resources allocated by the government. This can be done through monetisation of matured assets, using the models which the NHAI has already tried, such as toll-operate-transfer (TOT). Under TOT, NHAI gives a private entity the right to collect toll and the responsibility to operate and maintain an asset over a 30-year period for the payment of upfront, one-time, lump sum amount through a bidding process.

NHAI has tried to monetise assets through the TOT model twice. In the first round, in which a bundle of 700 km of national highways was awarded to Australia's Macquarie group, NHAI mopped up over Rs 9,681 crore, at least 15.4 times higher than its own estimate. The second round wasn’t successful as the highest bidder in this round, Cube Highways, had placed a bid of Rs 4,612 crore, much below NHAI’s estimated value of Rs 5,362 crore. For the third round, which has the smallest bundle offered so far under TOT, NHAI has identified nine sections stretching 566 km—four in Tamil Nadu, three in Uttar Pradesh, and one each in Bihar and Jharkhand.

Source: ICRA Limited
Source: ICRA Limited

For rural areas, the budget suggested upgradation of 1,25,000 km of rural roads over the next five years at an estimated cost of Rs 80,250 crore.

The push for the development of inland waterways too will continue. To increase the navigational capacity of Ganga, two multi-modal terminals at Sahibganj and Haldia, and a navigational lock and Farrakka, would be completed this year. Sitharaman said cargo movement on Ganga will increase four times in the coming four years. However, the government has decreased the allocation for inland waterways from around 891 crore in the financial year 2018-19 to 757 crores for 2019-20.

To fund these projects, and other infrastructure initiatives, the finance minister has increased excise duty and road and infrastructure cess by one rupee on every litre of petrol and diesel sold in the country. According to ICRA Limited, this too will bring significant returns. Its calculations suggest that this move is likely to increase the collection of road and infrastructure cess by 12.4 per cent, that is from Rs 1.13 lakh crore in 2018-19 to Rs. 1.27 lakh crore in 2019-20.

The finance minister has given the Railways budgetary allocation of Rs 65,837 crore and the highest ever outlay for capital expenditure of Rs 1.60 lakh crore. Of this, Rs 7,255 crore has to be used for the construction of new lines, many of which will come up in the North East and other border areas, Rs 2,200 crore has to be used for the upgradation of gauge, Rs 700 crore for doubling of rail lines to ease movement, Rs 6,114 crore for rolling stock and Rs 1,750 crore for signalling.

Apart from this, the budget also promises the redevelopment of 600 major railway stations across the country. The allocation for improving passenger amenities has been increased by around 200 per cent to Rs 3,000 crore.

Over the next decade, Railways will need an investment of Rs 50 lakh crore, the finance minister said. This investment can be brought in through Public-Private Partnership in the development of new tracks, freight services and rolling stock manufacturing.

Focusing on physical connectivity, the Economic Survey tabled yesterday said that India needs to double its investment in infrastructure to $200 billion annually through “innovative approaches”, suggesting that “the correlation of investments in inland, road, rail and airport infrastructure to GDP are higher than 0.90”.

To ease investment, a new credit rating system for infrastructure projects, based on ‘expected loss approach’, has been launched. Infrastructure Investment Trusts and Real Estate Investment Trusts have been formulated to pool investment.

Prakhar Gupta is a senior editor at Swarajya. He tweets @prakharkgupta.

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