In Part I of my commentary on the FY2023-24 Union Budget, I focused on how by eschewing populism and desisting from freebies and presenting an election year budget, contrarily Finance Minister Nirmala Sitharaman presented a forward-looking, growth-oriented budget, ticking all the key boxes right- consolidation of the economy with a targeted march towards fiscal consolidation; a big boost to the infrastructure-led capital expenditure (CapEx), providing the much-awaited relief and reforms in the direct taxes regime and with her framework of the ‘Saptarishi’ priorities, decided to propel the growth to a higher level to ensure that the country marches confidently on the path of becoming a developed economy by 2047, at the end of Amrit Kaal when India celebrates 100 years of the independence.
In Part II, I decode Sitharaman’s continued focus on enhancing the capital outlay in the infrastructure sector and further analyse what is par-on-course and what possibly could have been better.
To start with, it is worth recapitulating that out of the total budget outlay of Rs 45 lakh crore in FY2024, the capital expenditure of the Central government has jumped to Rs 10 lakḥ crore, which is not only a whopping 37.4 percent more than the revised estimate of FY2023 but is a fourfold jump over capital expenditure outlay of 2.5 lakḥ crore in FY2016. And there is more to the story. Once the fifty-year interest free grant in aid of Rs 3.70 lakh crore in FY2024 budget (Rs 1.3 lakh crore in FY16) to states for creation of the capital assets is added, the effective CapEx budget jumps to 13.7 lakh crore, i.e., 30.44 percent of the total budget outlay.
This singular focus on the capital outlay is what makes the budget future-focused and forward-looking. It is worth doing a deep dive into the inter-se prioritisation of the expenditure in different sectors of the infrastructure. Here we go-
First, the big news, as already flashed all over, is that the finance minister in her budget speech has allocated Rs 2.4 lakh crore as a capital outlay to Indian Railways. Being the highest-ever allocation in the Union Budget to Railways, it is big bang good news. Piggy-backing this allocation, the Indian Railways’ total budgeted capital expenditure on the acquisition of assets, construction and replacement, etc., stands at a record Rs 2.6 lakh crore–in which, apart from Rs 2.4 lakh crore from the Gross Budgetary Support (GBS)–additional sources are a paltry Rs 3,000 crore from internal resources of the Indian Railways, Rs 200 crore from Nirbhaya fund and Rs 17,000 crore from Internal and External Budgetary Resources (IEBR). At face value, this is the biggest-ever annual CapEx budget for the Indian Railways, which should take it to the stratosphere.
But the reality is more daunting.
The finances of Indian Railways (IR) are so precarious that I dare say, “IR is already in ICU and is in danger of slipping into a terminal coma. I say so based on the following hard data taken out from this year’s budget documents-
- For the financial year FY2023, the total receipts of IR is budgeted at Rs 2.65 lakh crore, whereas its working expenses are budgeted at Rs 2.60 lakh crore, with the resultant “budgeted operating ratio of 98.11.” This means that Indian Railways during the year will be spending 98.11 paise to earn Re 1. This is as bad as it can get. But the truth is scarier- firstly, if the past is an indicator, barring exceptions invariably in every financial year, the railways’ operating ratio has turned out to be worse than the budgeted. Secondly, as someone who has been analysing the railway budget for the print and visual media for the past two decades, I humbly submit that given the opaqueness annual financial numbers of IR, one should not be surprised if the operating ratio is already more than 100. This raises serious doubts about the ability of the Indian Railways to continue for long.
- The one-line statement of FM in her budget speech that capital investment in Railways is Rs 2.4 lakh crore, the highest-ever, conceals all and reveals nothing. A deep dive into the budget numbers indicate that out of Rs 2.4 lakh crore, investments which truly matter are– new lines (Rs 31,200 crore), track doubling (Rs 31,000 crore), critically needed track renewal (abysmal Rs 17,000 crore), rolling stock (Rs 38,000 crore-need higher if Vande Bharat trains, quality wagons and high-capacity locomotives have to be rolled out), signalling and telecom (Rs 4200 crore) and RE (Rs 8000 crore). All of these totals Rs 1,30,000 crore. The only truly other relevant CapEx is a small amount of Rs 14,000 towards the consumer amenities, the place where railway passengers intersect with the IR system.
Where does the balance capex of Rs 2.6 lakh crore go? Well, I submit that even railway finance experts have to look with a microscope to decode the mystery. Here is my full analysis of the railway part of the budget analysed from the budget documents. (https://www.moneycontrol.com/news/opinion/budget-2023-indian-railways-announcements-not-enough-outlays-9987711.html)
Second, the most significant feature of the FY2023-24 budget is the continued primacy of roads and highways in proportional share of the capital outlay as compared to other means of transport. As per the budget document “Key Features of the Budget 2023-24”, the capital outlay of the Ministry of Road Transport and Highways (MoRTH) stands at Rs 2.7 lakh crore, (much above Rs 2.4 lakh crore to Ministry of Railways) which is next only to Rs 5.94 lakh crore allocated to the Ministry of Defence.
Further perusal of the “Demands for Grants (Demand no 86)” of the MoRTH, shows that the actual capital budget for the ministry is still higher at Rs 3.21 lakh crore, out of which Rs 18591 crore is for the much-needed Northeast region and the balance Rs 3.03 lakh crore is for roads and bridges.
Stepping back, if I compare the FY2023-24 outlay for MoRTH at Rs 3.21 lakh crore as compared to actuals of Rs 89,195 crore of FY2021-22 in two years the allocation has jumped by an astronomical 360 percent. This is quite an achievement. But there is more to the roads and highway saga. It is worth noting that as on 31st January 2022, out of a total 63,71,847 km roads in the country, national highways were merely 1,41,190 km whereas state highways and other roads were 1,70,844 km and 60,59,813 km respectively.
From the above, it is safe to conclude that apart from the Union Budget, various state governments compete with each other to allocate higher capital outlay in their budgets to roads and highways. This author has tried to total up such outlays of different state governments and conservatively estimates the combined states’ outlay on roads and highways in FY2023 to be close to Rs 2 lakh crore.
This brings the total capital outlay of the Centre and states combined to more than Rs 5 lakh crore on roads and highways, which is more than double of FY2023-24 capital allocation to Railways.
I laud the fast development of roads and highways in the country. But make no mistake, of all the means of surface transport (roads & highways, railways, coastal shipping and inland waterways), roads and highways are the least environmentally friendly solution to the problem of transport. It is also the biggest land guzzler and the most polluting means of transport. And it leads me to the cardinal question- “Has the pendulum swung too far on the other side of the road?”
Yours truly fears that unless the reprioritisation is done quickly, Railways in India that were once the lifeline of the nation (in 1950, carried over 80 percent of freight traffic and over 90 percent of passengers) will soon become Dinosaurs ( in 2022, railways carried less than 10 percent of passengers and less than 25 percent of freight).
The bottom line is clear- it is good for the nation to develop highways, but it has to develop Railways much faster.
I humbly submit that this is one area where China has set its priorities with better clarity and superior result. It has developed more and more railways (both conventional and high speed, both dedicated to freight and passengers) and compared to railways, has put lesser focus on highways.
It is time for India to look East and take inspiration. And I submit, what China can do, India can do too, though a bit slower, as the success of India’s Metro Rail program testifies- in the last two decades India has developed (and is developing) more metro rail systems (in length) than any other country in the world outside China.
Third, post confusion and chaos of three years of Covid-19, India has up its ante to be the world’s manufacturing hub of choice competing with China. Further, with the country set to surpass China this year as the most populous country globally, it has to move raw materials and finished products not only faster but cheaper. Whether exports-led growth or domestic consumption-led growth, it brings urgency to have state-of-the-art, with deep drought and wide channels, major ports and minor ports that complement rail and road to effectively bring down the logistics cost. It is worth noting that against China’s 34 major ports (including some of the world’s largest and most efficient ports) and 2000 minor ports, India has barely 13 major ports and 205 minor or non-major ports (both numbers unchanged for the last two decades).
Even assuming that the minor/ non-major ports are the responsibility of the state governments, a careful examination of the Demand of Grants for the Ministry of Port, Shipping and Waterways brings home the truth that a capital outlay of Rs 500 crore for ports, Rs 20 crore on shipping and Rs 718 crore on inland waterways is substantially less than what the doctor called for.
Fourth, civil aviation is the fourth important clog of the transportation and logistics hub. As part of the Union Budget, the finance minister indubitably made her priorities clear- “50 additional airports, heliports, water aerodromes and advance landing grounds will be revived.” She also focused on measures to improve regional air connectivity. These are laudable goals. And even if one assumes that air travel infrastructure can be created in PPP mode, even then the total capital outlay of the Ministry of Civil aviation at Rs 87 crore is a pittance. It is worth noting that the US has 19,622 airports, including over 5,000 public airports, against which India has barely 103 domestic airports, 24 international airports, and 10 customs airports. Even China has more than 200 international airports. Clearly, the country has miles to go. And the journey has to begin now for the most populous country of the world, which has decided to be part of the galaxy of developed nations by 2047.
Fifth, the budget rightly emphasises that India’s rising global profile is because of several accomplishments in the field of unique world-class digital public infrastructure e.g., Aadhaar, CoWin and UPI and proactive role in frontier areas such as achieving climate-related goals etc. And for future focus, it has allotted an outlay of Rs 1.21 lakh crore.
To sum up, of the 10 lakh crore capital outlay, close to 70 percent goes to transport infrastructure and digital infrastructure creation. Once the projects fructify, the nation will definitely reap the benefits. Yours truly has only one caveat, the time is ripe now to tone down the uncomfortable tilt of the pendulum to the development of roads and highways.
(To be continued)
Part III will be focused on what the budget has to offer to the other core infra sectors and more importantly on key social sectors.
The author is a Multidisciplinary Thought Leader and India-based International Impact Consultant. Making tomorrow’s infrastructure happen today is his passion. He works as President Advisory Service of consulting company BARSYL. Views are personal.
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