In all the budgets of the NDA regime since 2014, the challenge has been to revive private investments, especially in infrastructure to boost overall growth. The private sector is expected to contribute a fifth of the required spend in the National Infrastructure Pipeline that envisages $1.4 trillion of investments by FY 25 on roads, railways, modern railway stations, airports, housing and cities, conventional and renewable power, irrigation, among others. The Centre and state governments are expected to contribute four-fifths despite limited fiscal space. To partly fund this, there is also an on-going effort to monetise public assets. But the response of the private sector has so far been underwhelming. This has forced the government to step up capital expenditures, largely through market borrowings, as the Budget has no surpluses for financing the NIP. Budget 2023 thus raised capex amounting to 1.7% of GDP through higher budgetary support to the railways and National Highways Authority of India. These public investments are expected to create an enabling environment for the crowding in of private investments, setting in motion a virtuous cycle that will trigger faster growth. To further these objectives, the Union finance ministry is believed to have tasked the World Bank to submit detailed reports on how the government can attract more private investments in the railways, roadways, urban infrastructure and power that depend on public investments.
The biggest challenge is attracting more private investments in the railways considering the poor track record so far in asset monetisation. The railways accounts for 25% of the Rs 6 trillion worth of assets to be monetised in the next four years to redevelop 400 railway stations, run 90 passenger trains, lease the track on dedicated freight corridors etc. But in FY 23 even a reduced target of Rs 30,000 crore from the initial aim of Rs 57,222 crore was missed due to limited progress in developing railway stations. Running private passenger trains is also a non-starter. How then can the railways raise Rs 30,000 crore this fiscal from asset monetisation to fund its capex? Reconfiguring the public-private-partnership model is an obvious solution with the World Bank’s help. But how can the private sector be on board in the absence of a regulator to ensure a level playing field between private and government-run trains? Although there is a model concession agreement for a period of 35 years in return for an upfront payment, track access charges, revenue share and commitment of investments, there is limited private sector interest. To ensure greater private sector participation, asset monetisation must be implemented with utmost transparency and balance between risk and reward, between public and private interests.
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The stakes indeed are high for putting in place the right policy incentives to enthuse the private sector to invest more in the railways and infrastructure in general. An earlier Economic Survey brought out that the railways could be the next locomotive of growth as it has large multiplier effects on growth and boosts the competitiveness of manufacturing. Higher private investments will add to the flurry of positive developments in this critical sector with the indigenously designed and built high-speed Vande Bharat trains, the on-going bullet train project between Mumbai and Ahmedabad and the western and eastern dedicated freight corridors which are likely to be finished next year and raise the share of railways in freight traffic.