Union Budget 2024-25: Accelerating India's infrastructure growth

The budget can play a crucial role in promoting sustainable infrastructure development across sectors.

By Jagannarayan Padmanabhan

To realise its Viksit Bharat vision, infrastructure development must be a key focus. Amid a lower-than-expected GDP growth rate this fiscal, infrastructure spending will drive economic growth. In Union Budget 2024-25, the government allocated Rs 11.11 trillion to the sector, an 11.1% year-on-year increase. However, challenges remain.

The Economic Survey 2023-24 highlighted delays in infrastructure development due to land acquisition issues, limited private sector participation, and insufficient focus on sustainability. According to MoSPI data, 63% of over 1,740 ongoing central sector projects have exceeded their schedules, and 25% have faced cost overruns. The upcoming budget should focus on addressing these challenges.

Encouraging Private Sector Participation:

Private investments and PPPs remained subdued in 2024 due to the Lok Sabha elections. However, tender rollouts did not speed up after the elections. Measures to boost participation include:

* Accelerating Highway Project Awards: Streamlining the bidding process will prevent delays and ensure a steady project pipeline. In fiscal 2023, 12,376 km of highways were awarded, but only 3,100 km were awarded up to December 2024. MoRTH announced a list of 53 toll projects, but only a few tenders were issued, some withdrawn due to viability concerns. The pace of toll-operate-transfer awards has also been slow, with limited interest from bidders.

* Expediting Airport Monetisation: Fast-tracking privatisation, PPPs, and monetisation of airports and underutilised assets should be a priority. Enhancing the viability of the UDAN scheme and increasing funds for smaller airports will improve connectivity to underserved regions.

* Funding Port Development and Shipbuilding: A Rs 300 billion Maritime Development Fund for ports and shipbuilding is expected. The government could incentivise shipowners to replace outdated vessels with ships built in local shipyards through a credit note scheme. Amendments to the Securitisation and Reconstruction of Financial Assets Act could allow ships to be mortgaged against loans.

* Boosting Asset Monetisation: The asset monetisation programme should be enhanced with new methods, such as securitisation, and by setting clear policies for the asset monetisation cell. The model concession agreement could be modified to address private sector concerns.

* Enhancing Dispute Resolution: Streamlining dispute resolution processes is essential for investor confidence. For example, the Delhi Metro arbitration case highlighted the need for certainty in arbitration outcomes. The June 2024 guidelines on limiting arbitration in high-value contracts may require revision.

Addressing Safety and Quality Concerns:

Recent incidents, such as bridge collapses, tunnel cave-ins, and train derailments, have raised safety concerns. As India continues expanding its infrastructure, safety and quality assurance are critical for sustainability. The budget should focus on:

* Enforcing Safety Norms: Adherence to safety and quality standards should be enforced during construction, planning, and execution, especially for roads, railways, and urban infrastructure.

* Increasing Budget Allocation for Road Safety: More funds should be allocated for road safety schemes, training, and research, with an emphasis on improving India’s poor road accident record.

* Enhancing Railway Safety Systems: Investment in technologies such as collision avoidance systems, advanced signalling, and AI-based track inspection can help reduce railway accidents.

Promoting Integrated Planning and Monitoring:

The PM Gati Shakti National Master Plan, launched in 2021, aimed to promote integrated planning, but its adoption remains limited, causing inefficiencies in infrastructure development. The budget should consider the following measures:

* Strengthening the National Master Plan for Roads: Improving coordination between state and national corridors will streamline infrastructure development and avoid duplication.

* Increasing Rail Coefficients: Interventions to improve the use of existing freight corridors and approval of projects in the pipeline can enhance capacity.

* Integrating Port Connectivity: Funds should be allocated to connect ports to industrial hubs through multi-modal logistics parks, ensuring efficient trade and transport.

* Expanding PM Gati Shakti Adoption: The portal should be expanded at all levels to ensure alignment and minimise overlaps, linking infrastructure budgetary support from the Centre to states based on their adoption.

Sustainable Infrastructure:

With India aiming for net-zero emissions by 2070, the budget can play a crucial role in promoting sustainable infrastructure development across sectors. Key areas to focus on include:

* Roads: The government should incentivise the use of sustainable construction materials like reclaimed asphalt pavement, cement substitutes, and waste plastic in road construction.

* Railways: Modernisation of railways can be accelerated by increasing the production of Vande Bharat coaches and modern wagons designed for higher speeds and greater payloads. Additionally, ramping up renewable energy projects (solarisation of railway stations and energy-efficient locomotives) will help meet net-zero goals.

* Aviation: The government should introduce subsidies or schemes for Sustainable Aviation Fuel (SAF) promotion and expedite solarisation of existing airports.

* Ports and Inland Waterways: Green sustainability initiatives for ports and shipping should be financed, focusing on energy-efficient and environmentally friendly practices.

* Clean Energy: Scaling up renewable energy installations is crucial for meeting India’s commitments under the Nationally Determined Contributions (NDCs). The government should allocate additional funds for battery-based energy storage under the viability gap funding route. Support for the solar manufacturing ecosystem should include incentives like extending the concessional corporate tax rate of 15%, production-linked incentives (PLI) for solar modules, and tax benefits for R&D investments. Green hydrogen/ammonia segments should also be supported through reduced GST rates and incentives for storage and transportation infrastructure. Additionally, non-conventional financing options, such as blended finance using concessional public capital, should be explored to meet the sector's large capital requirements.

The 2024-25 Union Budget offers a unique opportunity to address long-standing challenges in India’s infrastructure sector while preparing it for future growth. By enhancing funding, promoting private sector participation, integrating sustainability, and ensuring high safety and quality standards, the government can achieve inclusive, sustainable growth. Implementing these measures will help the country unlock its full infrastructure potential, contributing to economic growth and achieving the Viksit Bharat vision.

(Jagannarayan Padmanabhan, Senior Director & Global Head - Transport, Mobility and Logistics, Crisil Intelligence.)

Views are personal and do not represent the stand of this publication.