Union Budget 2018-19: Bharatmala project set to get garland of funds

The Ministry of Road Transport & Highways (MoRTH) could see a substantial increase in fund allocation in the Budget as the government looks to begin implementation of its ambitious Bharatmala project.

Even in Union Budget FY2017-18, MoRTH saw a 12% rise in allocation to Rs 64,900 crore. In the upcoming Union Budget to be tabled in Parliament on February 1, the ministry has sought an additional Rs 25,000 crore, that is a total allocation of around Rs 90,000 crore.

Over the years, the private investment in the road sector has reduced and the projects are largely being publicly funded. Once the government completes the road works, the highways would be monetised by being given out to the private players for maintenance, operation and toll collection on toll-operate-transfer (TOT) basis on an upfront payment.

In October last year, the Union Cabinet had approved road building programme to be implemented over the next five years at a capital expenditure of Rs 6.92 lakh crore for 83,677 kilometres of roads. This programme includes India's biggest highway development project – Bharatmala, which entails an expenditure of Rs 5.35 lakh crore for 34,800 km of highways and will be rolled out starting this year. Thus, there is a need for an increased budgetary allocation and spend.

"Infrastructure is expected to be one of the key areas of focus of Budget 2018-19. We expect about 10% increase in budgetary allocation to various ministries in the infrastructure sector. This includes railways, roads, ports, rural development and shipping," said CARE Ratings on the upcoming Budget.

Another rating firm Icra also sees allocation to infrastructure sector rising on account of Bharatmala programme.

"The total budgetary allocation to fund the ambitious new highway development programme is estimated at Rs 343,045 crore over FY2019-FY2022. Therefore, starting this Budget, the allocations to the road ministry are expected to increase substantially. In order to support the new programme, allocation to the MoRTH for FY2019 is expected to be in the range of Rs 80,000-85,000 crore against Rs 64,900 crore for FY2018," Icra said in a note.

Further, NHAI (National Highways Authority of India) market borrowings are estimated to be in the range of Rs 60,000-65,000 crore to support the new programme, it added.

And any reduction in the allocation will directly hamper Bharatmala's execution timeline.

Although the target set for highway construction is 41.09 km per day, the progress is not anywhere close to that figure. As per the statistics by MoRTH, in 2013-14, the daily construction average was at 11.67 km, which increased to 17.20 km in 2015-16. During this fiscal (up to December), it went up to 23.60 km. For Bharatmala, the average daily construction target is set at 56.85 km.

Other than the budgetary allocation, the industry keenly expects an announcement on the timeline for adoption of the new rating scale for infrastructure projects.

As per an announcement made in Budget 2016-17, a new rating scale based on the expected loss from the underlying credit was devised for infrastructure projects. At present, the probability of default-based ratings is considered, which does not reflect some of the inherent strengths of infrastructure projects.

Union Budget 2017-18 also made an announcement on a mechanism to streamline institutional arrangements for resolution of disputes in infrastructure-related construction contracts, public-private participation (PPP) and public utility contracts. However, there has been no update on this yet. Thus, the industry will be watching for any updates on the progress on setting up of PPP Project Review Committee and the Infrastructure PPP Adjudication Tribunal for re-negotiating concessions if there is evidence of distress in projects, expects Icra.