The Union Budget has traditionally been a major event on the country's economic calendar. Budgets have always been closely scrutinised by businesses, markets, and economists due to the government's role as the economy's largest resource mobiliser and spender, both on revenue and capital accounts. Governments have also used budgets to signal sectoral policy direction, as well as to lay out roadmaps and strategic intent, though this function has declined in recent years.
The budget to be presented on February 1, 2024, being interim, may not contain any significant policy pronouncements. It is, however, an opportunity to take stock of the capital expenditure, development, and direction of the infrastructure sector and discuss the way forward.
Betting On Capex
Recognising the need to lay a solid infrastructure foundation in order to achieve a US$40 trillion economy by 2047, the Government of India increased infrastructure spending to 3.3 percent of GDP for FY 2023–24, nearly trebling its expenditure in 2019–20. Capital expenditure budgeted for the current fiscal year accounts for nearly 22 percent of total expenditure, making it the highest in the last 15 years.
Central government infrastructure spending is led by two broad primary vectors: logistics (railways, freight corridors, roads, multimodal, GatiShakti et al) and defence (border roads, airfields, et al), which account for 66 percent of total capital expenditure. Besides these vectors, the central government is also collaborating with state governments and the private sector to build the National Infrastructure Pipeline (NIP). Of the NIP projects worth Rs 102 lakh crore, the centre and states have nearly equal contributions (39 percent and 40 percent), while the private sector has a 21 percent share.
Why Infra Spends Are Crucial
The requirements, however, are significant. India, as per the government’s own estimates, will need to invest approximately Rs 880 lakh crore in infrastructure projects over the next 23 years to achieve the high growth rate required to meet its 2047 target. The requirements are also complex and dynamic. In the coming decades, the rapid and unprecedented rise of new technologies – new energy sources, off-grid generation and storage systems, high-speed transportation, and so on – and their interactive synergies hold out the promise of both cheaper and decentralised architecture and widespread disruption of existing ecosystems. Both require significant strategic planning, architecture, and action to be successfully realised.
For a variety of well-known reasons, the large infrastructure financing requirements cannot be met solely through greenfield projects or government investments. The monetisation of government-owned brownfield infrastructure projects and the revival of public-private partnerships are two acknowledged components of supplementing government infrastructure spending.
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The National Monetisation Pipeline, which was conceived in 2021, is an important component of this resource generation strategy, initially consisting of a Rs 6 lakh crore monetisation potential programme through core assets of the Centre's brownfield infrastructure assets between FY 2022 and FY 2025. While there has been some monetisation success, it has been modest and episodic. Prioritising and effectively implementing a solid institutional architecture for packaging and monetising risk-adjusted, stable-returning, cashflow-generating brownfield assets in financial markets via INViTs, securitisation, and other means is critical for initiating a virtuous cycle of infrastructure financing.
The previous cycle's public-private partnership format, which had fallen into disuse and disrepute, must also be reimagined and revitalised, among other priorities, through improved project structuring, transparent allocation of risks and responsibilities, and faster dispute resolution.
Shorter Cycles Of Massive Disruption
While infrastructure projects have always had large outlays and long gestation periods, recovery and returns on investment have been largely assured over long periods of operation, with a stable buildup of cashflows and limited disruption of their contractually guaranteed and preemptive project-monopolistic characteristics.
Throughout the millennial history of infrastructure (steam-generated energy, roads, communications, ports, and so on), technological change has been mostly gradual and not disruptive. That is no longer true. Fixed landline telecommunications were the first to be impacted by mobile telephony. Then, within mobile telephony, there has been a rapid progression from 2G to 5G, even as competing formats such as CDMA have fallen by the wayside.
These shifts were accompanied by massive capital creation and destruction. Future technologies, such as new and improved energy sources, storage batteries, artificial intelligence, quantum computing, electric vehicles, and hydrogen, will not only interact and change the landscape in many infrastructure sectors but will do so in shorter cycles of massive disruption than in the past. Much of the technology that will dominate the economic landscape over the next three decades, including possibly infrastructure, has yet to be invented or commercialised.
The significance of building disaster-resistant infrastructure has been recognised. India leads the Coalition for Disaster Resilient Infrastructure (CDRI) in integrating climate action and disaster resilience. The government should take a similar approach to infrastructure technology. There is a need for formalising technology identification as well as integrated road maps for partnering, supporting, rolling out, financing, widespread adoption, and commercialisation in emerging sectors such as decentralised energy generation and storage systems and hydrogen, where India needs to get on the bus early to achieve global leadership. In their absence, fragmented development efforts and private-sector investments are unlikely to produce any results, especially in the face of competing nations' integrated efforts.
Budget numbers matter. But the strategy behind them perhaps matters even more. It is hoped that some of these issues will be addressed in the upcoming budget and beyond.
Sandeep Hasurkar is an ex-investment banker and author of `Never Too Big To Fail: The Collapse of IL&FS’. Views are personal, and do not represent the stand of this publication.
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