INFRASTRUCTURE SECTOR

India spends over 4 per cent of GDP on infrastructure, according to Oxford economics, as opposed to China, which spends about 6 per cent of GDP. To achieve UN sustainable development targets, India needs to invest at least 1.5 trillion more annually. Disputes between the government and vendors over infrastructure contracts often result in delivery delays and cost escalations.

On 1st February 2021 the Union Budget of India for 2020-21 was presented. It was led by Indian FM Nirmala Sitaraman and is the first one to be paperless due to the Covid Pandemic situation!

Let us look at the government budget’s exclusive Infra reports:

  • The Government has extended its ₹ 111 lakh crore ($1.5 trillion) national infrastructure pipeline so that by 2025 it can cover more projects to shore up economic growth as the nation recovers from the pandemic caused recession.
  • The National Infrastructure Pipeline, with 6,835 projects initiated, has now grown to 7,400 projects. Under some main infrastructure ministries, approximately 217 projects worth Rs 1.10 lakh crore have been completed.
  • The programme would need an increase in both government and finance sector support, she added. The government is planning to take three concrete measures for this purpose:
    • Creating structural framework Great traction on asset monetization Rising the proportion of capital expenditures in central and state budgets
    • Large thrust on asset monetisation
    • Increase in federal and state budget allocation in capital spending
  • To draw investment and make India a $5 trillion economy, building new highways, rail links and other social and economic infrastructure is crucial. The NIP, collectively sponsored by the central government (39%), the state government (40%) and the private sector (21%), aims to invest in projects across sectors such as electricity, social and business infrastructure, connectivity, water and sanitation.
  • In addition, a new construction financing institution named the National Bank for Infrastructure and Growth Finance will be set up by the government. This will be set up on a Rs 20,000 crore capital base and in three years it will have a Rs 5 lakh crore lending target.
  • The FM said, ““Infrastructure needs long-term debt financing. A professionally managed development financial institution is necessary to act as provider, enabler and catalyst for infrastructure financing”

Some of the other key announcements that the government announced with regards to the Infra-Sector:

  • It will launch a nationwide monetisation pipeline of future brownfield infrastructure properties.
  • To track progress and to provide investors with visibility, an asset monetisation dashboard will be developed.
  • NHAI and PGCIL to build confidence in infrastructure investment to draw worldwide funds. Five operating roads are being moved to NHAI InvIT with an approximate enterprise value of Rs 5,000 crore.
  • Transmission reserves to be transferred to PGCIL InvIT to the amount of Rs 7,000 crore
  • Rs 5.54 lakh crore for 2021-22 – a sharp rise in capital spending, which is 34.5 percent higher than the 2020-21 budget forecast.
  • To have more than Rs 2 lakh crore for the capital spending of states and autonomous bodies.

    Gross budget funding for capital spending was substantially increased to Rs 5,54 lakh crore in 2021-22 BE (up 34% from 2020-21 BE and 26% from 2020-21 RE), with a higher allocation to the infrastructure market (roads, railways, etc).
Capital Outlay (₹ Crore)2020-21 BUDGET ESTIMATES2020-21 REVISED ESTIMATES2021-22 BUDGET ESTIMATESGrowth over BEGrowth over RE
Railways₹ 1,60,792₹ 2,40,840₹ 2,14,85834%-11%
Road Transport & Highways₹ 1,46,975₹ 1,57,053₹ 1,98,23035%26%
MRTS and Metrorail₹ 20,471₹ 9,437₹ 24,58220%160%
Ports, Shipping and Waterways₹ 3,715₹ 3,129₹ 4,91732%57%

The Union Budget has declared the creation of a new DFI with a capital of Rs.20,000 crore to increase the funding availability for the infrastructure sector. The goal of this organization is to finance and provide the infrastructure sector with debt more than Rs 5 lakh crore over the next three years, thus helping to bridge the infrastructure funding gap. The funding of infrastructure projects in India is primarily from the banking sector and a few NBFCs for infrastructure.

The Union Budget also provided the NIIF with Rs 5,000 crore, which would enable it to acquire infrastructure properties. Apart from this, the NIIF Infrastructure Debt Financing Mechanism was provided with another Rs 1,000 crore funding, which could be leveraged to provide the sector with substantial debt financing. The NIIF debt platform plans to develop a Rs 1 lakh crore debt portfolio by 2025 with the government’s funding of equity capital and the NIIF Strategic Opportunities Fund and future private sector equity involvement.

TDS on distributions were also removed from the budget by the InvIT, which would reduce the enforcement conditions of unit holders/investors. InvITs have a great ability to draw long-term capital to invest in secure assets for operating facilities and have a constant supply of longer-term cash flows.

FISCAL POSITION

Union Budget 2021, the first budget of the decade, also the first digital budget, presented in the backdrop of COVID-19 crisis, estimates total expenditure for 2021-22 at Rs 34.8 lakh crores. Expenditure in 2021-22 has increased at an annual rate of 14% over 2019-20. Revenue expenditure (expenditure for the normal running of government departments, interest charges on debt) is estimated to be Rs 29.3 lakh crores and capital expenditure (government spending that goes into the creation of assets like schools, hospitals, roads, etc.) is estimated to be Rs. 5.5 lakh crores.

Government Receipts (income of the government) are estimated at 19.7 lakh crores (an increase of 6% over 2019-20) leaving deficit of 15 lakh crores to be covered by borrowings (27% annual increase over 2019-20). Fiscal deficit (difference between the total income of the government and its total expenditure) is estimated to be 6.8% of GDP. Government borrowing from the market is planned around Rs 12 lakh crores. The rest is to be funded through multilateral borrowings, Small Saving funds and short-term borrowings. The nominal GDP is estimated to grow at a rate of 14.4% in 2021-22.

Last Year’s Fiscal Position

Budget 2020-21 estimated total expenditure at Rs 30.4 lakh crores, but the actual expenditure came out to be Rs 34.5 lakh crores. Revenue receipts which were estimated to give the government 20 lakh crores were revised to Rs 15.5 lakh crores. Fiscal deficit estimated at 3.5 % of the GDP was pegged at 9.5 % of the GDP.

Break Up of Government Receipts

SourceEstimates (in lakh crore)
A. Tax Receipts 
i) Indirect Taxes11.2 (6.3 from GST)
ii) Income Tax5.61
iii) Corporation Tax5.47
iv) Excise Duty3.35
B. Non-Tax receipts2.43
C. Disinvestments1.75

Non-tax revenue consists of interest receipts on loans given by the centre, dividends and profits, external grants and receipts from general, economic, and social services, among others.

Gross Tax revenue is estimated at Rs 22.1 lakh crores, of which the central government’s share is Rs 15.45 lakh crore. Devolution to states, estimated at 6.65 lakh crores, is marginally higher than last year’s devolution.

DIRECT TAX PROPOSALS

  • Exemption from filing tax returns for senior citizens over 75 years of age and having only pension and interest income
  • National Faceless Income Tax Appellate Tribunal Centre to be established
  • Eligibility for tax holiday claim for start-ups extended by one more year
  • Capital gains exemption for investment in start-ups extended till 31 March,2022

INDIRECT TAX PROPOSALS

  • Reduction in Custom Duty: On certain Iron and steel products, Textile products, Gold and Silver, Chemicals.
  • MSME- To incentivise exports of garments, leather and handicraft items, exemption on import of duty-free items rationalised.
  • Agriculture- Customs duty on cotton set at 10% and increase on duty on raw silk and silk yarn from 10% to 15%.

What’s cheaper, What’s costlier

Costlier

  • Cars
  • Electronic appliances
  • Leather Items
  • Shoes
  • Mobiles and Home Appliances

Cheaper

  • Gold, silver and other precious metals like platinum and palladium
  • Medical devices imported by international organisation and diplomatic missions
  • Nylon Clothes