Budget 2024: All eyes on stronger order flows after a slow year of infrastructure project awarding

Industry players expect that the focus of the upcoming budget will be to increase project awarding in 2024–25

The infrastructure industry in India is hopeful that the government will come out with a long-term plan and timeline to upgrade infrastructure in the country as part of the interim Union Budget, which will be presented on February 1.

The budget will be a vote-on-account given the general elections slated for April-May 2024.

A vote-on-account enables a government that is completing its term to fund its expenses for the short period until a full budget is passed.

Union Finance Minister Nirmala Sitharaman has already stated that “no spectacular announcements” should be expected from the upcoming budget as the full budget for FY25 will be presented after the formation of a new government.

Increased project awarding

Industry players expect that the focus of the upcoming budget will be to increase project awarding in 2024–25 after it fell significantly in 2023–24, both in the roads and highway and railway sectors.

Up to November 30, 2023, the government has awarded projects to construct 2,816 km of national highway projects, which is much lower than the 5,382 km of projects awarded in the same period in 2022-23.

Similarly, in 2023-24, the Indian Railways (IR) came out with only one major tender — a Rs 30,000-crore tender for the manufacturing and maintenance of 100 aluminium-bodied Vande Bharat trains awarded in May.

In comparison, the IR awarded multiple major tenders in 2022-23, including a Rs 58,000-crore tender for the manufacturing and maintenance of 200 Vande Bharat trains, a Rs 23,500-crore order to supply 60,000 wagons, and a Rs 12,226.5-crore order to manufacture 15,40,000 wheels.

Global tax consultancy and audit firm Deloitte said that the government is expected to maintain its trend of high allocation of capital expenditure for infrastructure.

Rating agency ICRA said that given the historic trend of higher project awarding after general elections in India, it expects project awarding in 2024-25 to be significantly higher than in the current financial year.

In the Union Budget for FY24, Sitharaman allocated around Rs 10 lakh crore as capital expenditure for infrastructure development for 2023-24, which was 33 percent higher than the year ago.

Increased focus on safety

The industry also expects the government to increase its focus on safety while pushing for the timely upgrade of infrastructure in the country.

Ministry of Road Transport and Highways Secretary Anurag Jain said that the government is working on ways to improve the safety of highway projects in the country and will look to make some major announcements next year.

He added that the government has also decided to award projects only after pre-construction activities are completed. It will focus more on awarding projects under the build-operate-transfer (BOT) model and the hybrid-annuity-model (HAM) over the toll-operate-transfer (TOT) model to boost the safety standards of infra projects in India.

"Projects awarded under the BOT and HAM models have shown better quality of construction so far, and players bidding for these projects also have more construction experience," Jain said.

Similarly, Kushal Kumar Singh, Partner at Deloitte India, told Moneycontrol, that the government can look to extend road safety audits as part of the road contracts, allowing for regular audits of road maintenance and safety issues.

He also said that while the government has successfully invited foreign institutional investors to its asset monetisation initiative, it is observed that these investors still rely on Indian road maintenance agencies.

"NHAI can encourage these investors to introduce the latest technologies in road maintenance and safety from their respective global expertise into the country," Singh said.

Similarly, Jagannarayan Padmanabhan, Senior Director at CRISIL Market Intelligence and Analytics, said that the government needs to establish a mechanism to grade the contractors in terms of quality, timeliness of completion, within budget, and ability to give a good user experience.

"Selection of contractors should not be done only on a least-cost basis. The grading of contractors will per se put pressure on them to build good-quality roads," Padmanabhan added.

Faster dispute resolution

The Confederation of Indian Industry (CII) has asked for proposals to improve the swift dispute resolution mechanism and encourage public-private participation (PPP) in infrastructure projects.

At the moment, construction contracts often cause disputes and conflicts between contractors and governments, ultimately delaying the implementation of projects and increasing total costs, adversely impacting development outcomes.

The trade association's demands were echoed by market experts.

"While the government has made several attempts to resolve pending disputes, there is still a long way to go for reigniting investor interest in the BOT Toll model," Kushal Kumar Singh, from Deloitte India, said.

He added that public sector contribution in the highways sector has soared to 90 percent of overall investment, and therefore attracting the private sector to participate in BOT projects remains a priority for the government.

Coupling this with the soaring costs of land acquisition and construction has resulted in high financial stress on NHAI’s books, Singh said.