Union Budget 2022-23: Allocations to PMGSY increased by 27% to Rs 190 billion, which is expected to support the backlog

Indian Union Budget 2022: Allocations to PMGSY increased by 27% to Rs 190 billion

The government has relaxed fiscal deficit targets to meet the huge financing needs for the creation of productive assets, without which it would have been difficult to meet the Bharatmala and National Infrastructure Pipeline (NIP) targets.

The NIP entails an expenditure of about Rs 20.3 trillion in the road sector in the fiscal years 2020 to 2025 and is expected to play a significant role in asset creation. Of the total expenditure under the NIP, the central government’s contribution amounts to Rs 13.8 trillion, with the balance of Rs 6.5 trillion to be provided by state governments. However, budget allocations have lagged and have not kept pace with the funding needs of these plans.

The central government has allocated a total of Rs 4.9 trillion between FY 2020 and FY 2022 (36% of total expenditure). Of this amount, Rs 2.9 trillion is provided as gross budget support from the central government, while the balance of Rs 2.0 trillion has been financed through increased debt with the NHAI. As a result, NHAI’s total debt has risen to over Rs 3.3 trillion as of March 31, 2021 from Rs 1.8 trillion as of March 31, 2019.

In view of the rising debt levels of NHAI, the Indian government has decided to fund capital expenditure for national highway projects largely through budget support in FY2023. Therefore, NHAI is unlikely to gradually borrow in FY2023. To make up for this, budget allocations from the Ministry of Road Transport and Highways have risen sharply by 73% to Rs 1.87 trillion in BEFY2023, against Rs 1.08 trillion in BEFY2022 and 55% more than the REFY2022 of Rs 1.21 trillion.

However, including IEBR (market borrowings) and proceeds from asset monetization for NHAI, total outlay increased slightly by 4.8% to Rs. 2.08 trillion in BEFY2023 from 1 .98 trillion rupees in BEFY2022 but 1.7% lower than REFY2022 of 2.11 trillion rupees.

The total National Monetization Pipeline (NMP) indicative value for core central government assets has been estimated at Rs 6 trillion over the four-year period, with roads accounting for Rs 1.6 trillion. NHAI has been monetizing state-funded highway projects since 2018. In the current year, it had raised over Rs 50 billion through its first Infrastructure Investment Fund (InvIT) in November 2021, and an additional Rs 22.6 billion through the transfer of toll operation (TOT) prize. The budget provided for asset monetization of Rs 200 billion in FY 2023, which can be comfortably met given the strong appetite for road assets.

Allocations to PMGSY increased by 27% to 190 billion rupees in BEFY2023, from 150 billion rupees in BEFY2022, which should support the addition to the order book of small and medium-sized construction companies. In addition, provisions for mandatory payment of 75% of current invoices within 10 days will improve the working capital cycle of contractors.

The author is Assistant Vice President, Business Leader, ICRA Limited. Views are personal.

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