Now that many of the issues around financing infrastructure have been addressed all eye on Union Budget 2023. (Representative image)
Three confident predictions about the Union Budget 2023 would be, first, infrastructure sectors would get even higher funding, second, that it would be a continuation of the strategy followed over the last few years by the Union Finance Minister, and third, there would be much media hype around the Budget announcements.
While the Union Budget is essentially an income and expenditure statement, it has become a mini- ‘State of the Union’ address. The attendant media hype helps in focusing attention on the various budget announcements for current and previous years. Discerning analysts would understand that both Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have, over the last four years, made the direction of future budgets abundantly clear. Hence a reading of the previous two budget speeches is highly recommended for all even before February 1.
In addition, as part of the Budget papers comes a summary of actions taken on previous budget announcements. Last year, after the budget, the PM and FM participated in a series of sectoral online interactions with public and private stakeholders, to get inputs on better implementation of budget announcements. I was privileged to be part of two such interactions on infrastructure and finance, and was impressed by the openness of both elected and appointed officials to our suggestions.
On the fiscal front, a significant development was an increase in government revenues, largely due to three factors: increasing formalisation of the economy, stable and predictable tax rates, and better enforcement of tax and non-tax revenues. All three factors are interlinked and re-enforce each other. GST revenues are sustainably high, denoting the formal economy doing well. As an indicator of the informal economy, traffic and toll revenues are rising, now that toll collections are almost entirely digital. There is higher ease of doing business, especially on Union government matters. Digitalisation with India’s public digital infrastructure is a success story for the world to emulate, in this year of India’s G20 Presidency. In addition, low tax rates for the corporate sector has had a virtuous impact. Hence in 2023, the Union government has more money to spend. As a corollary, we can look forward to higher outlays for infrastructure sectors.
By now, in mid-January, almost all infrastructure ministries would have sent their proposals to the Finance Ministry. These proposals would have been discussed at length between the Budget Team and the infrastructure ministries. Decisions on how much allocation the specific Ministry would receive in the Budget would have been made. What should we expect?
There would be higher outlays to various ministries and entities involved in PM Gati-Shakti as well as the National Logistics Plan. These ministries include Transport including Railways, Road and Highways, Ports, Inland Waterways, Civil Aviation and others, as well as Energy, both renewable and conventional. In terms of ongoing programmes, we would get to hear about the progress on the National Infrastructure Pipeline including the seven engines under the PM Gati-Shakti National Master Plan. We would also learn about the progress and outlook for the National Monetisation Pipeline, where states are being asked to recycle their assets as well.
Urbanisation would define India’s economic growth over the next few decades, and conversely, would be a significant constraint on growth if we don’t see good governance in our cities. Housing and Urban Affairs, while a state subject, is getting larger outlays in Union budgets as an incentive to state governments. One of the first G20 meets hosted by India in January 2023 is on ‘Financing Cities of Tomorrow’ - a two-day Infrastructure Working Group meeting in Pune. In the last Budget, the finance minister announced the extension of the household piped water supply - Jal Jeevan Mission (JJM) to be extended to urban areas. We look forward to financial outlays and an implementation roadmap for JJM- Urban. Housing for All would also be a recipient of higher funding. Urban planning may be mentioned, but has to be delivered by state and city governments.
The development finance institution, NaBFID (National Bank for Financing Infrastructure and Development) is now fully operational, with the top team in place, who get a much higher remuneration compared to their banking peers or anyone in government, for that matter. This would hopefully lead to much better outcomes from NaBFID.
Now that many of the issues around financing infrastructure have been addressed, what is the wish list for infrastructure professionals. One of them was mentioned in last year’s budget, on bank guarantees for infrastructure contractors, which has been addressed by surety bonds to be issued by insurance companies. While several of these are not connected with the Budget of income and expenditure, we hope they would find a mention in the FM’s speech.
- Contract management and dispute resolution
- Capacity of government infrastructure entities at the Union, state and city levels
- Capacity of contractors
- Quality, both of hard assets and operational processes and outcomes
- Trained manpower and skill building
Seventy percent of India is yet to be built. If we want to do it with speed and at scale, weak contract management and dispute resolution is the biggest risk factor which could hold India back in infrastructure construction and operation. We need our own version of the 1994 Latham report on ‘Constructing the Team.’
Finally, the actual outlays on infrastructure from the Union government are actually less than the aggregate spend by all state governments. Far more attention needs to be devoted to state government budgets. If India is growing at a rapid pace, it is because at least 10-15 state governments are excelling, and growing much faster than even India’s growth rates. Capacity issues at state governments and their entities should be a priority. The challenge for the Union Finance Minister is how to incentivise this capacity building for state and city governments. Last year’s incentive for state governments was a good beginning.
Of all the media hype around the Union Budget, the easiest to discard is the ‘how will it be implemented, and executed’ – such commentators mistake financial statements for nitty-gritty operations. Here’s to avoiding such naïve comments on February 1, 2023.
Shailesh Pathak is Director, Indian School of Public Policy, New Delhi. He has earlier spent 19 years in the private sector and 17 years in the IAS. Twitter @shypk. Views are personal, and do not represent the stand of this publication.
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