Government looks at sharp capital expenditure hike

With an aim to push spending and give a thrust to building public infrastructure, the Union government has detailed a three-pronged approach — a sharp increase in capital expenditure to Rs 5.54 lakh crore for 2021-22, creation of a National Monetisation Pipeline of potential brownfield infrastructure assets, and setting up of a Development Financial Institution (DFI) with a sum of Rs 20,000 crore being provisioned in the Budget to capitalise the institution.

Presenting the Union Budget on Monday, Finance Minister Nirmala Sitharaman said that the National Infrastructure Pipeline (NIP) was launched in December 2019 with 6,835 projects, and has now been expanded to 7,400 projects.

This is in addition to around 217 projects worth Rs 1.10 lakh crore by key infrastructure ministries being concluded.

She said that NIP is a specific target which the government is committed to achieving over the coming years. It will require a major increase in funding both from the government and the financial sector, she said.


Why Development Financial Institution is needed

Infrastructure needs long-term debt financing, and a professionally managed Development Financial Institution is “necessary to act as a provider, enabler and catalyst for infrastructure financing,” Finance Minister Sitharaman said.

Rs 5.54 lakh crore budgeted as capital expenditure is 34.5 per cent higher than the Budget estimate for 2020-21 of Rs 4.12 lakh crore. “It was our effort that in spite of resource crunch we should spend more on capital and we are likely to end the year at around Rs 4.39 lakh crore, which I have provided in the Revised Estimates for 2020-21,” Sitharaman said.

Of the budgeted capital expenditure for the next fiscal year, the Budget allocated Rs 44,000 crore in the Budget head of the Department of Economic Affairs to be provided for projects, programmes, departments “that show good progress on capital expenditure and are in need of further funds”.

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Over and above this expenditure, we would also be providing more than Rs 2 lakh crores to States and Autonomous Bodies for their Capital Expenditure,” the minister said, adding that specific mechanisms to nudge states to spend more of their budget on creation of infrastructure will be worked out.

The government also plans to monetise operational public infrastructure to finance new infrastructure creation. Some of the key assets in the monetisation pipeline include dedicated freight corridor assets for operation and maintenance after commissioning by the railways; transfer of five road assets worth Rs 5,000 crore to NHAI InvIt and power transmission assets worth Rs 7,000 crore to PGCIL InvIt; airports in tier-2 and tier-3 cities for operations and management; and oil and gas assets of GAIL, Indian Oil and Hindustan Petroleum.

Lastly, the government has proposed creation of the DFI with an ambition to have a lending portfolio of at least Rs 5 lakh crore over the next three years. Sitharaman said a Bill to set up the DFI will be introduced.

In addition, the Centre also made sector-specific infrastructure announcements. These include a revamped reforms-based, result-linked power distribution sector scheme, to will be launched with an outlay of Rs 3,05,984 crore over five years.

Further, major ports will move from managing opertional services on their own to a model where a private partner will manage it for them. For this, seven projects worth more than Rs 2,000 crore will be offered by the major ports on public-private partnership mode in 2021-22, Sitharaman said.

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