The Centre has made a steep increase in budgetary capital expenditure by 37.4% on year to Rs 10 trillion for the next financial year, including Rs 1.3 trillion in long-term interest-free loans to the state governments.
The move is expected to help crowd in private investments, which are still low.
The key infrastructure and strategic ministries such as roads, railways and defence will drive capital formation in FY24.
“This substantial increase in recent years is central to the government’s efforts to enhance growth potential and job creation, crowd in private investments, and provide a cushion against global headwinds,” Finance Minister Nirmala Sitharaman said.
The capital outlay for railways, a key driver of the government’s capex push, has been raised sharply by 50% on year to Rs 2.4 trillion for FY24, virtually meeting all its investment requirements without the transporter resorting to market borrowings.
The Railways will invest Rs 20,000 crore from own resources in FY24, taking its total capex budget to Rs 2.6 trillion from `2.45 trillion in the FY23 revised estimate (RE). In FY23RE, budgetary capex support to railways was enhanced to Rs 1.59 trillion from the BE of Rs 1.37 trillion.
For the National Highways Authority of India, another capex thrust area of the government, the Budget capex support has been enhanced by 14% on year to Rs 1.62 trillion compared with the FY23RE of Rs 1.42 trillion (FY23BE of Rs 1.34 trillion).
To strengthen the hands of the states, the government has extended the 50-year interest-free loan for one more year to spur investment in infrastructure and to incentivise them for complementary policy actions, with an outlay of Rs 1.3 trillion, up 71% over the FY23RE. The grant like capex facility to states has been revised to Rs 76,000 crore for FY23RE, which is 24% lower than the FY23BE of Rs 1 trillion.
The capex outlay for FY24 would be 3.3% of GDP, compared with 2.7% in the FY23RE and 1.7% in FY20. The “effective capital expenditure” of the Centre including grants-in-aid to states for capital asset creation is budgeted at Rs 13.7 trillion (4.5% of GDP) for FY24, up 30% on year.
The Centre’s FY23RE for capex was pegged at Rs 7.28 trillion, which is 3% lower than the BE of Rs 7.5 trillion as the states could not fully use the capex loan facility. The FY23RE capex outlay worked out to be 23% higher than FY22’s Rs 5.93 trillion.
The government has identified 100 critical transport infrastructure projects for last- and first-mile connectivity for ports, coal, steel, fertiliser, and food grain sectors. “They will be taken up on priority with an investment of Rs 75,000 crore, including Rs 15,000 crore from private sources,” Sitharaman said.
Fifty additional airports, heliports, water aerodromes and advance landing grounds will be revived for improving regional air connectivity. The minister said the newly established Infrastructure Finance Secretariat will assist stakeholders for more private investment in infrastructure, including railways, roads and power, which depend on public resources.
The Harmonized Master List of Infrastructure Sub-sectors will be reviewed by an expert committee for recommending the classification and financing framework suitable for “Amrit Kaal” (till FY47).
With the help of property tax governance reforms and by ring-fencing user charges on urban infrastructure, cities will be incentivised to improve their creditworthiness for municipal bonds. An Urban Infrastructure Development Fund (UIDF) will be established through the use of priority sector lending shortfall. This will be used by public agencies to create urban infrastructure in tier 2 and tier 3 cities.
States will be encouraged to leverage resources from the grants of the 15th Finance Commission as well as existing schemes to adopt appropriate user charges while accessing the UIDF. “We expect to make available Rs 10,000 crore per annum for this purpose,” Sitharaman said.