The second phase of Bharatmala will focus on helping states develop state road networks.. Photo: Aniruddha Chowdhury/Mint
The second phase of Bharatmala will focus on helping states develop state road networks.. Photo: Aniruddha Chowdhury/Mint

Budget wants NHAI to build more roads, but look elsewhere for funds

  • The capital outlay for roads, railways, and metro projects have been budgeted to increase by 12–19% in 2019-20 over the 2018-19
  • NHAI is also expected to raise equity by monetising more assets through toll-operate-transfer and Infrastructure Investment Trust routes

MUMBAI : Physical connectivity – moving goods and people by roads, rail and air cheaply and efficiently – was the big thrust of Union Finance Minister Nirmala Sitharaman’s maiden budget speech, in which she mentioned the Pradhan Mantri Gram Sadak Yojana, industrial corridors, dedicated freight corridors, the Bhartamala and Sagarmala projects, Jal Marg Vikas (for capacity augmentation of navigation on national waterways) and UDAN (to encourage domestic air travel) schemes.

The numbers bear out the government’s intentions, with its reiteration to spend 100 lakh crore in infrastructure over the next five years. In her speech, Sitharaman said that the government will carry out a comprehensive restructuring of National Highway Programme “to ensure that the National Highway Grid of desirable length and capacity is created using financeable model". The second phase of Bharatmala will focus on helping states develop state road networks.

The capital outlay for roads, railways, and metro projects have been budgeted to increase by 12–19% in 2019-20 over the 2018-19. While the increased capital outlay is proposed to be supported by higher budgetary allocations in railways and metro projects, the National Highways Authority has been tasked with turning to internal and extra-budgetary resources for building roads.For FY20, the budget allocation to the Ministry of Road Transport and Highways increased from 99,322 crore in FY19 to 1,11,691, rising by a significant 12%. In the speech, Sitharaman focused on rural roads, where the Pradhan Mantri Gram Sadak Yojana (phase 3) will be used to upgrade 1,25,000 km of rural roads over the next five years, at an estimated cost of 80,250 crore. While the budgetary support to NHAI has been increased from 68563 crore to 72058 crore, the government wants the highways authority to redouble efforts through other fund-raising routes, such as toll-operate-transfer and infrastructure investment trusts.

NHAI is also expected to raise equity by monetising more assets through toll-operate-transfer and Infrastructure Investment Trust routes (by transferring mature assets to SPVs). “Therefore, timely monetisation of mature road assets is critical to fetch funding to support ambitious execution targets set for the Bharatmala programme; failing which the shortfall has to be met through additional borrowings thereby further increasing the debt at NHAI," a note from credit ratings agency ICRA said.

“At the outset itself, infrastructure was mentioned as a large focus area with a specific thrust on physical connectivity," said Aakanksha Joshi, Partner, Economic Laws Practice. “The speech envisions a grid for the highways and interconnectivity with various transportation modes for better access and efficiency. Achieving this may require legislative intervention considering the various authorities involved, at national, state and local levels.

“There are overlaps of authority between the centre and state over some of these facilities that would need to be carefully smoothened out," Joshi added. “Whether a Central infrastructure regulator would be required given the proposed heightened connectivity between different infrastructure modes, could be considered."

Support to Sagarmala and schemes under this to boost inland water transport fell to 757 crore, from 891 crore in the previous year. However, the government proposed increasing investment in water harvesting, water management and treatment. The budget has provided 3049 crore for central sector schemes, 4311 crore for centrally sponsored schemes, and 19,994 crore for centrally sponsored drinking water schemes.

“We recognize that investment-driven growth requires access to low-cost capital," Sitharaman said. She proposed setting up of a credit guarantee enhancement corporation, an action plan to deepen the market for long term bonds with special focus on infrastructure and permitting foreign investors to sell their debt securities in infrastructure debt funds within the specified lock-in period.

Also, for resource mobilization for infrastructure sector, it has been proposed to increase special additional excise duty and road and infrastructure cess each by one rupee a litre on petrol and diesel. This will generate more funds for infrastructure investment. A calculation provided by ICRA Ratings suggests that with this, the total Road and Infrastructure Cess is estimated to increase to Rs. 1.27 lakh crore in 2019-20 from Rs. 1.13 lakh crore in 2018-19, an increase of 12.4%.

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