Beyond Budget: Policy Push Puts Infrastructure in Fast Lane

For the government, which has set a target of Rs 11.1 trillion capex for FY25, the focus is clearly on ramping up physical, digital, and social infrastructure by fast-tracking investments. Especially when the government's capex in Q1 FY25 stood at Rs 1.8 trillion, nearly 33 percent lower than Rs 2.7 trillion during the corresponding period last year.

Considering the lag in investments due to elections, the government is taking steps to give a significant push to capex. In this regard, the Finance Ministry has initiated a policy to relax capital expenditure norms for significant releases above Rs 500 crore in this financial year. Especially as the capex has a multiplier effect on infrastructure, and due to the dip in capex, the GDP had slowed down to 6.7 percent during the April-June quarter.

Besides this policy initiative, the Finance Ministry has been undertaking a review of the capex by various infrastructure ministries and urging them to expedite the implementation of their capex plans by setting and meeting quarterly targets. At the state level, the Centre has been releasing advance funds to step up capex, with a view to boosting infrastructure. So far, out of Rs 1.5 lakh crore allocated to states for FY25, the government has sanctioned Rs 46,000 crore in capex loans.

During the first 100 days of the government, particularly post-budget, Rs 3 lakh crore worth of infrastructure projects have received approval to boost connectivity. On August 2, 2024, Rs 49,000 crore were approved under the Pradhan Mantri Gramin Sadak Yojana (PMGSY-4) for constructing 62,500 km of roads. In addition, eight new national high-speed road corridor projects covering 936 km at a cost of Rs 50,600 crore were approved. The government is preparing to approve another tranche of highway projects worth Rs 2 lakh crore by December 2024, though this fiscal, the target of building 10,421 km of highways is likely to be 15 percent lower than last year. However, in order to speed up highway construction, the Ministry of Roads, Transport & Highways (MoRTH) is working on the standardization of highway contracts, clearly defining standards for contractors with specifics regarding permitted deviations. In this regard, stakeholder consultations are being undertaken. This policy initiative will not only help make highways more sustainable but also cost-efficient.

In order to fast track connectivity through ports, a mega project in Maharashtra, costing Rs 76,200 crore, has been undertaken. A decision has been made that the Shipping Corporation of India will start operating a large container ship, in addition to finalizing plans to buy five more second-hand container vessels. A review of major ports is also underway to identify infrastructure deficiencies, with a view to upgrading existing ports into regional maritime hubs. All these policy measures are aimed at bringing down shipping costs, improving the availability of empty containers, lowering handling and loading costs, ensuring faster evacuation of export consignments, and considerably reducing congestion at ports to ease port operations.

Post-budget, the focus has also been on expediting railway and metro connectivity. Eight railway projects worth Rs 2,465 crore were approved to boost connectivity and bring down logistics costs. Besides, the plan has been rolled out to construct 64 new railway stations. These projects are part of the Gati Shakti National Master Plan for multimodal connectivity. Indian Railways is also undertaking the exercise of revamping the Gati Shakti Cargo Terminal Policy to increase private participation in setting up freight-related infrastructure by doubling the number of terminals. On the metro connectivity front, on August 16, three new metro projects in Pune, Thane, and Bengaluru worth Rs 30,700 crore were sanctioned.

For ramping up air connectivity, the development of Lal Bahadur Shastri International Airport at Varanasi as a green airport at a cost of Rs 2,870 crore was approved. This includes a new terminal building, apron extension, and runway extension. Besides this, a new civil enclave at Bagdogra at an investment of Rs 1,549 crore and a new enclave at Bihta, Bihar at a cost of Rs 1,413 crore were sanctioned.

In a major policy initiative to boost industrial infrastructure, the Centre, on August 28, 2024 has approved 12 new industrial smart cities across six major industrial corridors in ten states at an investment of Rs 28,600 crore. Five of these cities will come up along the Amritsar-Kolkata Industrial Corridor, two along the Delhi-Mumbai Industrial Corridor, and one each along industrial corridors of Vizag-Chennai, Hyderabad-Bengaluru, Hyderabad-Nagpur, and Chennai-Bengaluru. These industrial cities are expected to attract an investment of Rs 1.52 trillion. To be developed under the National Industrial Corridor Development Programme, these industrial cities will have residential and commercial real estate developments as well.

A policy overdrive is also underway to increase FDI in the infrastructure sector. The National Investment and Infrastructure Fund (NIIF), a quasi-sovereign fund backed by the Indian government and several global investors, is looking to raise the largest-ever funding of USD 4 billion to upgrade infrastructure. Due to the policy push, Canadian investment firm Brookfield, which has already invested USD 13 billion in Indian infrastructure, is preparing to increase its investments. US Pension Funds are also looking at ramping up their investments in the infrastructure sector in India through investment vehicles like NIIF, by connecting with partners and collaborators in the government. India is also seeking a USD 10 billion funding boost from London-based funds. In September, a team led by Niti Aayog CEO BVR Subramanyam met with fund houses to discuss potential investments in Indian infrastructure. Earlier, an agreement was signed between the City of London Corporation and Niti Aayog regarding financing. At the policy level, in a bid to further ease the foreign investment regime, the government is considering a plan to allow full fungibility between foreign portfolio investment (FPI) and foreign direct investment (FDI) in sectors where 74 percent or more FDI is allowed.

In light of this, Crisil expects infrastructure investments to jump 38 percent to Rs 15 trillion by FY26. Ashish Modani, SVP and Co-Group Head, Corporate Ratings, ICRA Limited, believes that given the overall GDP multiplier effect of infrastructure spending and consequent job creation in the skilled and unskilled segment, capital inflows to the sector will remain healthy. And all this bodes well for the infrastructure sector.