Twin Budget challenges: Cutting public debt while boosting infrastructure

Since coming to power in 2014, the NDA has been increasing capital expenditure year on year. Between 2014-15 and 2021-22, it invested Rs 91 lakh crore in infrastructure and social sector schemes. In 2023-24, it earmarked Rs 10 lakh crore in capital expenditure, an increase of 37.4 per cent from the revised estimate of 2022-23.

The expenditure includes Rs 24.85 lakh crore on food, fuel and fertiliser subsidies. The annual capital expenditure (capex) allocation for the Ministry of Railways increased from Rs 58,719 crore in 2014-15 to Rs 2,60,200 crore in the 2023-24 Budget Estimates, a 3.3-times rise.

Highway construction has grown from 12 km per day before 2014 to 37 km per day currently, with the aim to scale it up to 60 km per day by 2047. The total length of highways has increased from 90,000 km before 2014 to 1.45 lakh km under the Modi government.

Rise in public debt

While these paint a picture of a government with a pincer-like focus on developing infrastructure, critics argue that such huge spending has led to a rise in public debt, which is expected to exceed 80 per cent of GDP in FY24. Much of the infrastructure funding is from resources outside the Budget, including increased borrowings by entities like the National Highways Authority of India (NHAI). In some cases, a significant portion of the allocated Budget remains unutilised, such as one-third of the Rs 2.15 lakh crore allocated to the Railways in 2022-23.

Over the years, several cracks have developed either in the execution of infrastructure projects such as roads, or once they were completed.

Bharatmala Pariyojana

For example, the Comptroller and Auditor General of India (CAG) has criticised the Government’s flagship project, Bharatmala Pariyojana, an umbrella programme for the highway sector launched in 2015, for its failure on several fronts. These include (source: PRS Legislative Research for points 1-7):

1. Existing highways included without further development: The CAG observed that 49 per cent of the 70,050 km of national highways to be developed under Bharatmala Phase I were already developed or awarded under previous schemes without any proposals to develop them further. The CAG recommended removing such existing highways from the Bharatmala targets.

2. Projects taken up without resolving existing bottlenecks: The CAG noted that incomplete projects from the earlier National Highway Development Project (NHDP) were taken up under Bharatmala without resolving existing issues such as land disputes and right-of-way problems. This led to significant delays in project completion.

3. Variations in financing models: The CAG observed significant deviations from the approved financing models, with only 1.8 per cent of the projects implemented under the Build-Operate-Transfer (BOT-Toll) mode compared to the approved 10 per cent and higher reliance on Engineering, Procurement and Construction (EPC) and Hybrid Annuity Model (HAM).

4. Lack of systematic prioritisation: The CAG highlighted the absence of a clear prioritisation method and completion timelines, which led to 46 per cent of the length of 11 high-priority corridors remaining unawarded as of March 2023.

5. Cost overruns and fund mismanagement: The CAG noted significant cost overruns, with the per-kilometre cost increasing from Rs 14 crore to Rs 24 crore. It also observed that funds worth Rs 1.57 lakh crore approved for other schemes were being utilised to report achievements under Bharatmala.

6. Irregularities in tendering and contractor selection: The CAG found instances of ineligible bidders being selected, tender notices being floated without detailed project reports, and a lack of due diligence in the appraisal and approval of NHAI projects.

7. Dwarka Expressway: The CAG has revealed that the “cost of this project was originally estimated at Rs 528.8 crore but later zoomed to Rs 7,287.2 crore — a whopping 1,278 per cent increase”. It also noted that the project was “appraised and approved without any detailed project report” and had “suboptimal specifications”.

8. Delhi-Meerut Expressway: On June 29, 2018, it was reported that the Delhi-Meerut Expressway, inaugurated by Prime Minister Narendra Modi on May 27, 2018, had signs of damage due to pre-monsoon showers. At first, a distinct crack appeared on the expressway. Later, an entire portion of the road caved in. Working on the reconstruction, the engineers blamed the water trickling in from the drains for dismantling the road.

Twin challenges

Hence, during the forthcoming Union Budget, the Centre will have to reduce public debt and conduct regular audits and monitoring of road construction projects to identify issues, address bottlenecks, and ensure efficient fund utilisation.

During a meeting with Finance Minister Nirmala Sitharaman last month, state ministers sought special packages and higher allocations of funds for building infrastructure without reform-linked milestones. The Andhra Pradesh minister also sought additional funds to set up a new capital, which includes building roads, ports, and a green corridor.

The industry has also sought an extension of tax exemptions for Sovereign Wealth Funds (SWFs) and Pension Funds (PFs) to invest in infrastructure projects. The government has proposed extending the sunset clause for this tax exemption from March 2024 to March 2025, which will provide much-needed clarity and encourage long-term patient capital from these funds.

Some of the others include

1. Fast-tracking the implementation of the Bharatnet and Network for Defence projects, which have seen significant delays.

2. Increase funding and address underutilisation of schemes like Swachh Bharat Mission-Gramin, Atal Bhujal Yojana, and Namami Gange under the Jal Shakti Ministry. Improving water infrastructure is crucial for sustainable development.

3. Boosting investment in healthcare infrastructure by increasing allocations for medical colleges and hospitals and addressing personnel shortages. This will improve access to quality healthcare.

4. Accelerating the development of multi-modal logistics parks (MMLPs) under the Bharatmala program to enhance logistics efficiency.

While the Modi government has made significant strides in increasing infrastructure investments and improving the country’s connectivity, it faces substantial challenges. The criticism over rising public debt, inefficient utilisation of allocated funds, and execution flaws in major projects like Bharatmala Pariyojana underscores the need for more effective planning and management.