In line with the discourse in the Economic Survey 2020-21, the government has clearly opted for a strategy of using public investment to push economic growth, even if it requires stretching the fiscal deficit and resorting to increased borrowings for a temporary period.
Sharing his thoughts on the Union Budget, Arindam Guha, Partner, Leader - Government and Public Services, Deloitte India said: “This is borne out by the current year’s estimated fiscal deficit of 9.5 per cent, followed by 6.8 per cent in 2021-22. The original MTEF goal of 3-3.5 per cent is only expected to be achieved by 2024-25.”
This has given government the leeway to increase spending in areas like infrastructure & capital assets as well as health & social security, which are likely to have a multiplier effect on demand generation and GDP growth.
While a 10 per cent increase in budgetary outlay on infrastructure was always expected, the government has committed ₹5.54 lakh towards infrastructure in 2021-22 as against ₹4.39 lakh crore in 2020-21 (RE), which translates to an increase of 26 per cent. This clearly shows the continued commitment and focus on infrastructure as a key enabler for GDP growth going forward.
Within infrastructure, the Budget has highlighted strategic projects like select road and railway stretches in States like Tamil Nadu, West Bengal, Assam etc. many of which are part of existing economic corridors like the East Coast Economic Corridor, Delhi Mumbai Industrial Corridor, etc.
Some of these projects are likely to have a disproportionate impact on overall GDP growth by virtue of them featuring in some of the key trade and logistics routes and being in States which have significant upside in per-capita GDP.
The need for a new Development Finance Institution (DFI) for extending long tenure debt financing at reasonable rates has been addressed in the budget.
However, success would depend largely on
(a) how effectively the capital contribution of the government is leveraged to mobilize extra-budgetary resources from other long term investors like pension funds, sovereign wealth funds, development partners as well as international capital markets;
(b) How the proposed DFI is structured to meet the needs of specific sectors like urban infrastructure, health etc. where projects are primarily expected at the State and even local government level and
(c) Mechanisms for partnering with State governments through which they can contribute to the financial corpus of the institution and also leverage the technical expertise and financial resources of the DFI(s).
Budget 2021-22 has highlighted the importance of monetizing operating infrastructure assets by providing higher visibility to potential projects for monetisation through a National Monetisation Pipeline as in the case of the National Infrastructure Pipeline (NIP).
It has also listed specific projects in the roads and power sectors where sector focused InvITs are already in place. Since asset monetisation requires sector specific expertise, one specific area which may still need to be addressed is to facilitate InvITs or similar mechanisms for sectors like Railways including urban metro projects and Urban infrastructure projects, which account for around 30 per cent of the NIP.
The Budget itself has specifically highlighted monetization of the Dedicated Rail Freight Corridors as a focus area.
Budget 2021-22 has separately covered two other key enablers for infrastructure development and financing – monetization of surplus / idle land held by the government and resolution of contractual disputes.
While a Special Purpose Vehicle has been proposed with specific technical expertise for land monetisation has been proposed for the former, a conciliation mechanism for resolving contractual disputes with government has been envisaged under the pillar of Minimum government and Maximum Governance.
For land monetization in particular, the associated regulatory, governance and institutional framework would be important given that significant land parcels may be held by the State governments as well as loss making public sector units.
On the issue of dispute resolution, while specific infrastructure Ministries and agencies have already embarked on such efforts to resolve project-related bottlenecks, the need is to have a set of overarching guidelines / principles which can be leveraged across sectors.
While the budget has clearly met most of the infrastructure related expectations, the issue of enhanced credit guarantee limits for infrastructure projects has not been specifically highlighted.
While this may have been addressed in the fine print, it would be a key enabler for higher investment by domestic pension funds and insurance companies, which have cumulative assets of over ₹50 lakh crore, in financial instruments floated by infrastructure companies, he said.