Union Budget 2017-18: Implications for Infrastructure

It was always expected that Infrastructure will be the one big push area for the Union Budget. Firstly, there had been lot of progress on railways and roads and it was time for the big push. Secondly, the actual mechanism of implementation had to be tweaked and that had to be addressed in this budget. Thirdly, Indian requires nearly $1 trillion worth of investment into infrastructure over the next five years to bring the levels of infrastructure at par with Asian levels. Fourthly, for the GST to be successful, a very robust transport and connectivity infrastructure was a necessary precondition. It is in this background that this Union Budget was presented…

What does this Union Budget have for the Infrastructure segment?

  • This Union budget had a few firsts to its credit. Among other things, this was the first time in 93 years that the Railway budget was being presented as part of the Union Budget. This also fits in perfectly because when the railways are combined with other competing modes of transport, it gives a clearer picture of the total investment involved into infrastructure. For the fiscal year 2017-18, the budget has envisaged a total investment of Rs.131,000 crore into Railways. Out of this total investment, the government has provided Rs.55,000 crore by way of budgetary support, while the balance has to be raised by the Indian Railways through its resources.
  • Within the ambit of Railway infrastructure, there is a big thrust on railway safety and security; and rightly so. Over the last few months, there have been a series of major accidents which have been partly attributed to poor infrastructure, partly to outdated rolling stocks and partly to manual signalling systems. This budget has tried to address the issue of railway infrastructure by making railway safety the central theme; which is perhaps the right way to do it. The FM has budgeted a total investment of Rs.100,000 crore for railway safety in the next 5 years. Additionally, the government has also focused on adding another 3500 km of new lines in the financial year 2017-18.
  • Over the last couple of years, the government has managed to set records in terms of implementation of (km per day) of roads and highways across the country. India’s arterial road network has put tremendous pressure on the limited national and state highways which account for 40% of the traffic but get a disproportionately small portion of the investment. The government has tried to address this anomaly in successive budgets. The total allocation for roads has been increased by 12% to Rs.64,900 crore. Since the time this government took over, they have added roads stretching up to 140,000 KM across India. Interestingly, the roads delivery at 133 km per day is currently at an all-time record and has been largely on account of de-bottlenecking.
  • This budget has also made a special allocation of Rs.2000 crore to connect coastal towns. Currently, Indian trade and commerce tends to suffer vis-à-vis other Asian nations due to the poor quality of last-mile connectivity. That accounts for a bulk of the delay and makes many Indian products uncompetitive in the global markets. This project will also be in sync with the massive inland waterways project that the government has proposed and the combination of quality roadways and quality waterways will go a long way in improving India’s last-mile infrastructure.
  • Apart from roadways and railways, the budget has also focused on airports and metro as a core infrastructure enhancer for major Indian cities. Currently, there are different laws for metro rail which will all be integrated into one single Metro Rail Act and supported by a Metro Rail Policy. The Act will provide a single-point regulator and frame clear guidelines to attract more PE and private participation in these projects; both in constructing and operating them. This could go a long way in reducing the stress on existing rail and road infrastructure and has been successfully implemented in foreign countries. Within India, Mumbai and Delhi are good case studies for the success of this model.
  • One of the big roadblocks for a seamless and efficient transport experience across India is the sheer absence of quality airports in second rung towns. While the top 10-15 cities in India have good quality airports, most of the other airports lack the ability to handle larger number of passengers, have outdated security infrastructure and many even lack night-landing facilities. The budget proposes to take up select airports in Tier-2 cities for operation and maintenance under the Public Private Partnership (PPP) model.
  • This budget also proposes a very important dispute resolution mechanism for infrastructure related construction contracts, PPP projects and public utility contracts. This will be an amendment to the Disputes & Reconciliation Act 1996 and it will give much greater confidence to investors to participate in the PPP process.
  • Lastly, the budget has also focused on next-generation telecom infrastructure and renewable energy, which is the direction the government is moving India’s power sector towards. There is a proposal in the budget to connect nearly 150,000 Gram Panchayats through an Optical Fibre Broadband Network. This could have strong externalities for rural demand and rural incomes. Additionally, the budget also proposes an addition of 20,000 MW of solar capacity via solar park development.

In a nutshell, the government has made a big bet on infrastructure in this Union Budget. There is also a big thrust on rural infrastructure, including post-harvest infrastructure. At least, the base has been set and now a lot will depend on the implementation.

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