Budget 2024: Another jump likely in budget for roads

A big increase of 20-25% in capex allocations is expected for highway development in the next fiscal. (Photo: Bloomberg)
A big increase of 20-25% in capex allocations is expected for highway development in the next fiscal. (Photo: Bloomberg)

Summary

  • The government may allow another big increase of 20-25% in capex allocations for the roads ministry in order to speed up road construction

New Delhi: The government proposes to remain focussed on rapid infrastructure growth in the next financial year and may even allow another big increase of 20-25% in capex allocations for the roads ministry in order to speed up road construction, two persons aware of the plans said.

A substantial portion of higher allocation would also go toward meeting the capital expenditure of the National Highways Authority of India (NHAI), which, having been put on a moratorium for market borrowings for the past couple of years, is now being funded entirely by the government.

One of the persons cited above said that a 25% increase in capex for ministry of road transport and highways (MoRTH) will take its budget to over 3.2 trillion, the highest-ever.

This would allow it to build more greenfield highways and expressways, giving a leg-up to transport infrastructure that is key to propelling economic growth.

The higher capex for the roads ministry may be announced in the interim budget to be presented in Parliament in February, the person said, adding that MoRTH has already indicated the numbers in its pre-budget consultations.

The numbers may see some revision when full budget is presented by the new government at the Centre early in the second half of 2024 calendar year, he added.

Queries sent to MoRTH remained unanswered at press time.

A higher allocation for MoRTH for FY25 would build upon a 25% rise in capex for the ministry in FY24 when allocations rose from a level of 2.06 trillion (revised estimate) in FY23 to 2.58 trillion in FY24. Prior to that, the capex for road and highways increased by a historic 82% from 1.13 trillion (actuals) in FY22.

The persons quoted above said that though this would be sufficient to speed up highway development, more allocation should be considered for this critical sector that is also in the midst of expanding the network of large sized expressways like the Delhi-Mumbai Expressway, work on which has already started.

It has also to complete the Bharatmala highway project that envisages construction of 34,800 km of roads connecting economic centres including ports, railway hubs and inland waterway stations.

The cost estimates for Bharatmala-I project, conceived in 2017\, has doubled from the initial 5 trillion to over 10 trillion now, which would require more funds with MoRTH and NHAI.

The project is now estimated to be completed by FY28. Also, MoRTH is finalizing a Vision 2047 document that would bring forward new alignments of about 30,000 km of controlled highways for bidding, requiring additional investments of over 20 trillion.

An infrastructure sector expert from one of the four big global audit firms said on condition of anonymity that higher government allocation for the sector would only be beneficial if the money goes into capital expenditure rather than paying salaries or providing populist subsidies.

A look at the expenditure trend of MoRTH highways shows that the balance of government spending has clearly shifted towards capital spending over the past few years. In 2021-22, capital expenditure stood at 1.13 trillion while revenue expenditure was just over 10,000 crore.

The ratio between revenue and capital expenditure stood at 50:50 level in 2014-15. But the ratio changed from that year onwards

In 2015-16, this ratio changed, with the Ministry spending more funds on capital expenditure. Since then, the Ministry has increased its capital expenditure significantly, while revenue expenditure has gradually declined and is now flat at around 11,000 crore. In 2023-24, over 96% of the ministry’s spending is budgeted to be capital expenditure; prior to this year the capital expenditure was 95% and in FY22 it stood at a still lower level of around 90%.

Apart from focus on capital spending, the quality of expenditure has also seen an improvement with maximum funds going to NHAI that had the mandate to build highways and expressways in the country. Out of 1.235 trillion total allocation (capital plus revenue expenditure) in 2021-22, a substantial, 57,000 crore has gone to NHAI, a jump of over 35% over previous year. This figure has further gone up to 1,42,000 crore and 1.62 trillion in FY23 and FY24 respectively. The total allocation of MoRTH during these two years stood at 2.17 trillion and 2.7 trillion respectively.

In the last nine years, length of NHs has gone up by about 60% from 91,287 km (as on April 2014) to over 1,45,000 km now. The target is to take it up to 200,000 km by FY25. All this happened despite adverse situations due to covid restrictions, and heavy and long monsoon season. With higher allocation, NHAI proposes to further step-up highways construction, taking it up from a level of 37 km per day in 2020-21 to close to over 40 km in the next fiscal. The target for the current year is close to record levels achieved in FY21.

Highway construction in the pre-pandemic period of FY20 was10,237 km at a daily rate of 28.04 km. The pace increased during the first pandemic year (FY21), when lockdowns helped accelerate construction, resulting in a record 13,327 km of highways built at 36.51 km per day. In FY22, the rate slowed again to 10,457 km, at 28.64 km per day. For FY22, the road ministry initially aimed to construct 14,600 km of highways—or 40 km per day. However, it later revised the goal to 12,000 km. FY23 ended with 28.3 km/day construction, with overall 10,331 km of highways being built in the year.

The Government of India has allocated 111 lakh crore (US$ 1.4 trillion) under the National Infrastructure Pipeline for FY2019-25. The roads sector is likely to account for 18% capital expenditure over FY 2019-25.

 

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