Budget 2024 | Infra industry wants government to continue spending, increase pace of project awards

Project Planning

In less than a month, the government on February 1 will present its interim budget for 2024-25, and the infrastructure sector hopes the focus will be on capital expenditure.

"We continue to expect adequate allocations towards the infra sectors such as roads, highways, railways, etc., in FY2025," rating agency ICRA said as part of its budget expectations.

Finance Minister Nirmala Sitharaman would present Budget 2024, which would be a vote-on-account given the general election slated for April-May 2024.

The story so far

Although the government has announced various initiatives over the past few years to develop infrastructure, execution has been slow.

In the first eight months of FY24, the Ministry of Road Transport and Highways and the National Highways Authority of India awarded projects to construct 2,816 km of roads, far lower than the 5,382 km of projects awarded in the same period in 2022-23.

According to Crisil Research, bottlenecks including time lost in financial closure and land acquisition, limited increase in budgetary support, and higher capex for 70 percent of high-value expressways under construction have led to delays in NHAI awarding new projects.

Similarly, in 2023-24, Indian Railways (IR) put out only one major project to bid—a Rs 30,000-crore tender for the manufacture and maintenance of 100 aluminium-bodied Vande Bharat train sets that was awarded in May.

In comparison, IR awarded multiple major tenders in 2022-23, including a Rs 58,000-crore tender for manufacturing and maintaining 200 Vande Bharat train sets, 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.

Many are stuck in limbo. The high-profile rural broadband project BharatNet has been stalled for almost 12 years, caught in procedural wrangles and lack of inter-department coordination.

Other major projects facing delays include the Hubli-Ankola New Line Project, a supercritical railway project stuck due to litigation regarding wildlife board clearance; the Delhi-Ghaziabad-Meerut Regional Rapid Transit System corridor; and the four-laning of the Bengaluru-Chennai Expressway.

Expectations of the roads and highways sector

Infrastructure companies expect the budget to provide a push to capital expenditure, especially in labour-intensive sectors like construction.

On their part, officials of highway developer companies have sought crucial changes in the direct tax regime to boost capital expenditure by private players in infrastructure projects.

The infrastructure industry has also urged the government to consider plans like creating an employment-linked incentive scheme for the services sector and starting pilot programmes for a national employment guarantee scheme for cities.

“Employment-linked schemes will help reduce labour costs in the execution of infrastructure projects, thereby encouraging companies to hire more employees and increase the execution speed of projects,” an infrastructure analyst at PwC said.

ICRA said that given the historic trend after a general election, it expects project awarding in 2024-25 to be significantly higher than in the current financial year.

In the 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 in the year earlier.

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

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

Similarly, Jagannarayan Padmanabhan, senior director at CRISIL Market Intelligence and Analytics, said the government needs to establish a mechanism to grade contractors in terms of quality, adherence to timelines, staying within budget and ability to give a good user experience.

The industry has also asked for proposals to improve the dispute resolution mechanism and encourage public-private participation in infrastructure projects.

At the moment, construction contracts often cause disputes and conflicts between contractors and governments, leading to time and cost overruns, adversely impacting development outcomes.

"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 (build-operate-transfer) toll model," Deloitte’s Singh said.

Expectations of the railways sector

Industry participants working with IR requested the government to not go slow on orders to expand freight and cargo capacity.

“The infrastructural boost towards improvement of the National Rail Network needs to continue and the 3000 MT mission must not get diluted by any means," said Vivek Lohia, managing director of Jupiter Wagons.

He added that the government must focus on rolling stock-up upgradation and modernization to fast-track for better efficiency in revenue generation.

"Procurement of Rolling Stock assets to remain a high-priority subject. The number of wagons going to be overaged between 2024 and 2031 is anticipated to be around 45000 and it is essential that the new stocks must be added at a much higher rate,” Lohia added.

While the railways ecosystem is looking for orders, passengers are hoping that fares will be kept in check and that safety and quality standards will improve.

"The government should see that train fares don`t go up. Also, the fare increases over the last few years should be controlled," said Sanjay Mathur, a passenger at the Hazrat Nizamuddin Railway Station in Delhi.

Passengers are also looking for an upgrade in services and facilities.

"The railways still need to pay a lot of attention to the cleanliness in trains. Also, the trains that were stopped at the time of Covid should be made operational again," said Rajan Sharma, a passenger who travels regularly between Meerut and Delhi.

Women passengers emphasised that government authorities should strive more to ensure their safety onboard trains.

"I feel safety and security (of women passengers) should be the main focus of the budget. Women`s hygiene on trains should also be in focus. I feel the trains don't have enough facilities for parents who travel with their children. There is no secure facility for a mother to breastfeed her child. Such facilities should be introduced on priority," said Bhawana Kumar, another passenger.