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High expectations from budget 2017
On 1st February 2017, when the Finance Minister, Arun Jaitley rose to present the union budget, the expectations running were very high from all quarters.
- People who took pains to stand in bank queues for hours, due to demonetisation, were expecting a soothing balm in the form of higher income tax exemptions and deductions.
- Companies across sectors, battling a fall in demand due to demonetisation, were looking forward to a stimulus that will revive demand.
The Finance Minister, with whatever limited resources he had, managed to appease everyone, in some way, without diverging from the fiscal consolidation path.
- Reduction in income tax rate: The Finance Minister pleased the middle class by reducing the income tax rate from 10% to 5% for people earning incomes between Rs. 2.5 lakhs – Rs. 5 lakhs. People earning higher incomes will also enjoy this rebate of Rs. 12,500.
- Economic stimulus: These income tax savings will put an extra Rs. 20,000 crores in the pockets of people. This can be seen as a stimulus to the economy, hoping that people will spend this extra money, which will lead to increase in demand for products and services.
- Fiscal prudence: The Finance Minister did not announce any populist measures with an eye on the upcoming state elections in five states. Contrary to the expectations, the Finance Minister walked the path of fiscal prudence by sticking to his fiscal deficit target.
Budget agenda: Transform, Energise and Clean India (TEC)
In the budget, the Finance Minister’s agenda for next year (2017-18) is “Transform, Energise and Clean India” or TEC. The budget was presented under ten distinct themes to foster this broad agenda. One of the themes was infrastructure: for efficiency, productivity and quality of life. In his budget speech, the Finance Minister did his bit to push infrastructure growth.
Railways
The Finance Minister announced the railways total capital and development expenditure at Rs. 1.31 lakh crores for 2017-18. He also announced that a Rashtriya Rail Sanraksha Kosh will be created for passenger safety. This is the need of the hour, considering the poor safety track record of the railways.
- Safety: The money from this fund will be used to build railway over-bridges, upgrade tracks and signalling systems and ending unmanned crossing, apart from other safety works that will be funded from this fund.
- Passenger facilities: In order to make railways a better mode of transport for its users, some measures that will be taken up include stations redevelopment, provision of lifts and escalators to make stations differently abled friendly, feeding stations with solar power making them environment friendly, SMS based Clean My Coach Service, provision of bio toilets etc.
- Digital ticketing push: The service charge on tickets booked through IRCTC has been withdrawn. While customers will be happy with the removal of this small cost, it is a part of the Government’s bigger agenda of moving away from cash transactions and pushing digital transactions in a big way.
All the projects that will be taken up by the railways will lead to opportunities for companies that are in the business in civil projects, developing stations, laying tracks, developing signalling and other electrification services. This will lead to creation of jobs for the youth, which is one of the important objectives of the government. Also industries like cement, steel, aluminium etc. will get a fillip from the railway projects.
Roadways
The road sector has got a budgetary allocation of Rs. 64,900 crores for highways. With this huge budget, road developers and construction companies can look forward to fast tracking of road projects in the pipeline and announcements of new road projects from the Road Transport and Highways Ministry. New road projects will create jobs for the youth, give a fillip to cement industry and spur economic activity. Some of the budgetary money will also be allocated to the installation of crash barriers, improvement of black spots and accident prone spots on the roads, thereby improving road safety.
A specific programme for development of multi-modal logistics parks, together with multi modal transport facilities, will be drawn up and implemented. These will help to reduce traffic congestion, reduce pollution, bring down the cost of logistics and make the economy more competitive.
Airports
In Tier 2 cities, select airports will be taken up for operation and maintenance under the public private partnership (PPP) model. This will support the government’s regional connectivity plan.
Venkataraman Rajaraman Senior Director - Infrastructure and Project Finance - India Ratings and Research, shares his opinion
Government’s thrust on two star subsectors of infrastructure – Solar and Airports – has continued in the budget. However, the flipside of renewable push (new solar capacity planned 20GW) in the absence of strong power demand combined with slippages in implementing 100% rural electrification (earlier May 2017 now May 2018) will elevate the stress on the thermal power projects.
India Ratings views bringing in private operators for Tier 2 cities as an opportunity for large developers and international airport operators and would give necessary impetus to the sector, given the surging air traffic volumes. The agency expects the overall air passenger volumes to touch 310m by FY18.
At the same time, absence of any sops like GBI or tax incentives for the wind projects are disappointing. Other announcements like last mile port connectivity by identifying 2000 km coastal roads, integrated transport solutions forging partnerships with logistics players and plan to encapsulate PPP dispute resolution mechanism in Arbitration and Conciliation Act lend strengths to the sector. Overall, budget announcements for infrastructure sector was a mixed bag and the agency believes some of the highlighted aspects would be dealt in greater detail outside the framework of budget.
Conclusion
Overall, the infrastructure sector has got a total allocation of Rs. 3,96,135 crores. By providing outlays for various development programmes in the infrastructure sector, the Finance Minister has done his part to give the much needed stimulus to this sector. Infrastructure development is expected to provide jobs to the youth and also give a fillip to the raw material industry and other supporting industries.
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