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The Change
The road sector got a boost in the Budget. Bharatmala phase-II will focus on developing State road networks and rural roads got an outlay of ₹80,250 crore to upgrade 1,25,000 km of rural roads over the next five years.
To bring down power tariffs, Finance Minister Nirmala Sitharaman said India will move to a single grid for power distribution. Old and inefficient plants will be retired, and issues of stalled gas-based power plants due to unavailability of natural gas will be resolved.
Issues like cross subsidy on power, duties on open-access sale of power will also be resolved in discussion with the States. A package for tariff and structural reforms will be announced soon along with an improved UDAY for State power distribution companies.
Background
During 2014-19, road construction rose from 12 km per day in FY2014 to 27 km in FY2018. Budgetary allocations grew from about ₹65,000 crore in FY2018 to around ₹83,000 crore in FY2020.
In 2018-19, the sector ran into roadblocks. Among other factors, funding squeeze at NBFCs and banks hit road players. Land acquisition issues and slowdown in decision-making due to the general elections also took a toll. The target of constructing 40 km a day in FY2019 was missed.
Stocks of companies such as Dilip Buildcon, Sadbhav Engineering, IRB Infrastructure and Ashoka Buildcon lost nearly 60 per cent of market value in the last 12 months, while IRB Infrastructure lost nearly 67 per cent of its market value.
During 2014-19, the aggregate profit of S&P BSE Power index constituents grew by a compounded annual growth rate of 4.5 per cent, while revenues rose 8.75 per cent. The BSE Power index lost 11 per cent in the past 18 months from its highest level achieved over the past five years.
UDAY scheme deleveraged discoms and Saubhagya scheme extended electricity power supply to hitherto ‘dark’ parts of the country. This helped shore up demand for power. However, power generation companies such as NTPC, Adani Power and Tata Power were impacted as discoms couldn’t pay their dues to them on time, leading to working capital cycles getting stretched, and rising interest costs.
Verdict
Phase 1 of Bharatmala was to get completed by 2022. It’s not clear whether taking up of development of state road projects will commence only after 2022, or from the current financial year. Funding issues for road developers remain unresolved in the Budget.
On the power sector, resolution on long pending issues relating to power tariffs, cross subsidies, electricity duties and gas-based power plants is a welcome step. The learnings from UDAY should be incorporated in the proposed UDAY 2 to make sure discoms don’t relapse into old habits of not raising tariffs.
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