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Budget 2018: Roads, railways, irrigation and urban to hog mammoth infra spend

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Roads, railways, irrigation, and urban infrastructure are expected to comprise over 71 percent...

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Roads, railways, irrigation, and urban infrastructure are expected to comprise over 71 percent of India’s infrastructure investments over the next five years.

▪ Roads: CRISIL Research expects investments in road projects to double to Rs 10.9 trillion in the next five years, as compared to the investments in the fiscals 2013 and 2017, as national highways projects are fast-tracked and Bharatmala goes into overdrive.

A strong pipeline of projects, spurt in financial closures for hybrid annuity model projects, and focus on completing land acquisition prior to awarding of projects are expected to boost momemtum in the coming fiscals. We expect higher budgetary allocation through Central Road Fund (CRF) and toll collection in Budget 2019, to meet an increased public expenditure requirement.

▪ Railways: Railways has been one of the key focus areas for investments. We expect investments in railways to double over the next five years, to Rs 8.1 trillion. Investments are expected to flow in construction intensive projects such as network decongestion, new lines, Dedicated Freight Corridor, and High-Speed Rail.

▪ Irrigation: Investments in irrigation is expected to rise by ~70 percent over the next five years to Rs 5.7 trillion. Six major states account for over 60 percent of investments, with Gujarat, Karnataka, and Maharashtra being the top three spenders. The government’s bottom-up approach, well-defined systems, fast-tracking of ~ 75 projects, and focus on completing existing major and medium projects will drive spends.

▪ Urban infrastructure: The government’s thrust on urban infrastructure development is apparent with the launch of various schemes such as Smart City, AMRUT, and Swachch Bharat, and emphasis on quicker execution of metro rail. Investments of Rs 6.5 trillion are expected between fiscals 2018 and 2022, which is more than twice that in the previous five years.

▪ Power: Aggregate investments in power generation plants are expected to fall, as investments in thermal generation declines. Investments will be focussed on renewable sources. Given stressed financials of private sector generation companies and lack of fresh power purchase agreements expected from distribution companies, conventional power-based capacity additions is expected to slow down to ~40 GW (~34 GW thermal, 4 GW hydro, and ~2 GW nuclear) between fiscals 2018 and 2022, compared with 98 GW added between fiscals 2013 and 2017. Additions will be led by central and state public sector undertakings. On the other hand, capacity addition in the renewable space (wind and solar) will be driven by strong government support, falling capital costs, and improvement in the execution ecosystem.

▪ Airports: CRISIL Research expects investments of Rs 260-280 billion in airport infrastructure over the next five years. Steep growth in passenger traffic and government’s aim to boost connectivity are expected to drive demand for airports. In the past few years, there were significant delays in greenfield airport investments due to challenges in land acquisition and approvals. However, we expect the share of greenfield investments to rise to 70-75 percent in fiscal 2022 from 45-50 percent in fiscal 2017, with the government targeting faster project approvals.

▪ Ports: We expect investments of Rs 325- 375 billion in the next five years in ports (excluding dredging), leading to a capacity addition of 375-425 million tonnes. These will be driven by upcoming container terminals on the west coast as well as petroleum, oil and lubricant terminals on the east and west coasts. Majority of the investments are expected at major ports.

Budget expectations for the infrastructure sector:

▪ Amendment of Section 80-IA to include benefits to upgradation of existing infrastructure facilities.

▪ Abolishment of MAT on construction companies.

▪ Restoration of section 10(23G), which exempted income on investments in infra companies in the form of debt or equity from tax under it.

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