The FY24 Union Budget will be presented against the backdrop of renewed uncertainties around global and domestic growth, tighter financial conditions, and national elections in CY24. While the Budget faces policy trade-offs between nurturing a nascent growth recovery and diminishing fiscal space, infrastructure is expected to be a key beneficiary of higher allocations. Infra’s large multiplier effect on growth and employment is well known.

It is anticipated that the Government will boost capital outlay with a focus on roads, railways, drinking water, sewerage, urban and rural infra. It may unveil measures to improve the availability of long-term funds to the infrastructure sector. Besides, steps to incentivise long-term debt raising through infrastructure bonds/tax-free bonds may be on the cards, just as there could be more steps to attract private sector investments. Plus, cement as a sector could also benefit from the government’s focus on housing and infrastructure and from higher allocation in the road and housing schemes. Here is a look.

Gati Shakti, long-term funding

The infrastructure sector expects the Government to continue taking steps towards achieving the Gati Shakti and NIP targets. The capital expenditure is expected to be increased by 15-20 per cent from ₹7.5 trillion in FY2023 BE.

The major focus is expected to be on key infrastructure segments like roads, railways and urban infrastructure. Dedicated allocations for specified large infrastructure projects announced such as High-Speed Rail, Jal Jeevan Mission, Bharat Mala, Sagar Mala, Smart Cities, Inland Waterways development can help accelerate these programmes.

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The infrastructure sector also expects measures to improve long-term funding availability for the sector. For this, ramp up in lending/investment by the newly set up DFI – NaBFID - and the NIIF and incremental allocations towards these will be important.

Incentivising debt raising by select infra PSUs similar to infrastructure bonds/tax-free bonds may also support funding availability for the sector. Measures to resuscitate private sector interest in taking up new projects, including speedier resolution of disputes, are also expected.

Since private sector participation is necessary to achieve the infrastructure goals of the country, all eyes will be on whether the Budget takes any measures related to the credit guarantee programme. Such a scheme by the government can play an important role in improving the credit rating of the project, which can attract more investors both domestically and globally. At the same time, announcements related to InVIT launches by government-controlled companies could be on the cards. 

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In 2022, shares of IRB Infrastructure grew 27 per cent, PNC Infratech grew 9 per cent whereas G R Infra projects fell 35 per cent. It remains to be seen what trajectory infra sector stocks take post Budget.

Cementing demands

An important piece of infra theme is cement. The continued focus of the Government on agriculture and rural development is expected to aid rural demand, including demand for rural housing, which is a significant contributor to the overall cement demand story.

For the cement and housing sector, a rise in the deduction benefit available on interest and principal payments on housing loans availed by buyers can support the strong growth cycle. Enhanced tax concessions on income from renting of housing properties and removal of taxation on notional rental income can help demand for new properties. This should be sentimentally positive for cement companies also.

Schemes such as PMAY have played a crucial role in improving home ownership and sustained focus on budgetary and extra-budgetary allocation to such schemes can better access to housing in the low- to mid-income segments of the population. Higher allocation to PMAY, thus, will be an indirect positive for cement sector.

Also read: Editorial. The Budget’s capex challenge

The truth is the cement industry is a major source of greenhouse gas emissions. Hence, there are expectations that the Budget will pave the way for cement makers to be eligible to tap green financing markets to pay for waste to be burned as fuel in its kilns. This can allow the cement industry to cut costs because waste is often available for free and sometimes municipalities pay companies to take it away.

Cement roughly accounts for 8-10 per cent of the construction cost and is taxed at the highest slab of 28 per cent, which is understood to affect demand for cement. Thus, a reduction in GST on cement could significantly lower construction cost and boost the production capacity.

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