Budget 2022: Government decision to fund capital outlay for NH projects largely through budgetary support positive

The government relaxed the fiscal deficit targets to meet the huge funding requirements for productive asset creation, without which achieving targets under both the Bharatmala and the National Infrastructure Pipeline (NIP) would have been challenging.

NIP involves an outlay of around Rs 20.3 trillion in the road sector over FY2020-FY2025 and is expected to play a significant role in asset creation. Of the total outlay under NIP, the central government’s contribution stands at Rs 13.8 trillion with the balance of Rs 6.5 trillion to be contributed by the state governments. However, budgetary allocations have lagged behind and not kept pace with the funding requirement of these plans.

The central government has allocated a total of Rs 4.9 trillion between FY2020 and FY2022 (36 percent of the total outlay). Of this, Rs 2.9 trillion is provided as gross budgetary support by the central government while the balance of Rs 2.0 trillion was funded by raising debt at NHAI. Consequently, the total debt of NHAI increased to more than Rs 3.3 trillion by March 31, 2021, from Rs 1.8 trillion as of March 31, 2019.

Given the rising debt levels at NHAI, the GoI decided to fund the capital outlay for national highway projects largely through budgetary support in FY2023. Therefore, NHAI is unlikely to borrow incrementally in FY2023. To plug this, the budgetary allocations for the Ministry of Road Transportation and Highways have increased sharply by 73 percent to Rs 1.87 trillion in BEFY2023 from Rs 1.08 trillion in BEFY2022 and 55 percent higher than REFY2022 of Rs 1.21 trillion.

However, including the IEBR (market borrowings) and asset monetisation proceeds for the NHAI, the total capital outlay increased marginally by 4.8 percent to Rs. 2.08 trillion in BEFY2023 as against Rs 1.98 trillion in BEFY2022 but 1.7 percent lower than REFY2022 of Rs 2.11 trillion.

The total indicative value of the National Monetisation Pipeline (NMP) for the core assets of the central government has been estimated at Rs 6.0 trillion over the four-year period with roads accounting for Rs 1.6 trillion. NHAI has been monetising public-funded highway projects since 2018. In the current year, it had raised over Rs 50 billion through its maiden Infrastructure Investment Trust (InvIT) in November 2021, and another Rs 22.6 billion from toll-operate-transfer (TOT) awards. Budget envisaged asset monetisation of Rs 200 billion in FY2023 which can be comfortably met given the strong appetite for road assets.

The allocations to the PMGSY increased by 27 percent to Rs 190 billion in BEFY2023 from Rs 150 billion in BEFY2022 which is expected to support the order book addition of small and mid-sized construction contractors. Further, provisions related to payment of 75 percent of running bills mandatorily within 10 days will improve the working capital cycle of contractors.

The author is Assistant Vice President, Sector Head, ICRA Limited. Views are personal.

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