Budget expectations . Road sector expects 15% increase in capital outlay, acceleration of asset monetisation process

The country’s road sector, which is poised for accelerated growth, expects an increase in government budgetary allocation to sustain the momentum and meet targets. It managed a remarkable fast turnaround from the Covid-19 lockdown phase.

The sector investors expect a clear funding roadmap for the national infrastructure pipeline. And there is an expectation that there will be an increase in capital outlay by 15 per cent in the Union Budget and the potential to speed up asset monetisation.

Rating agency ICRA believes that to achieve the ambitious National Infrastructure Pipeline (NIP) projects involving ₹20.3 lakh crore in the road sector over the next five years, the budgetary allocations in the past have not kept pace with these plans, needs to be speeded up.

Consequent to lower allocations, the dependence on debt funding remained elevated. The total debt for the NHAI has increased by three times to ₹2.49 lakh crore as on March 31, 2020, from ₹75,385 crore as on March 31, 2017. The borrowings are expected to surpass ₹3.5 lakh crore by FY2023 to fund the Bharatmala Pariyojana programme, a subset of NIP.

Funding holds the key

During a webinar today, Shubham Jain, Senior Vice President, Corporate Ratings, ICRA said, funding is the key to accelerate the country’s road sector growth. “FY2022 remains a crucial year for two reasons--Importance of government spending to revive the economy and significant catch up to do in the ongoing Bharatmala and allied programmes. As a result, the capital outlay is required to be increased by at least 15% supported by an increase in budgetary allocation to the sector at least by 20% to around ₹0.98 lakh crore to make up for the shortfall in last three years and slow progress on asset monetisation.”

“Investors also expect funding roadmap for the ambitious NIP. Given the limited fiscal headroom, the Government could consider the relaxation of fiscal deficit targets to meet the huge funding requirements for productive asset creation; failing which both the Bharatmala and the National Infrastructure Pipeline could get jeopardised,” he said.

Project execution

The execution during 8M FY2021 stood at 6,207 km, 4% higher than 5,958 km in 8M FY2020. Adjusting for the first 20 days of April 2020 wherein no construction activity was allowed, the execution per day saw a growth of 13% to 27.7 km/day in 8M FY2021 from 24.4 km/day in 8M FY2021. The execution for FY2021 could surpass the 10,500 km. Project awards also saw a massive jump of 111% to 6,764 km in 8M FY2021 from 3,211 km in 8M FY2020, given the thrust laid on Bharatmala Pariyojana.

ICRA expects the Bharatmala awarding process to get completed by FY2023 and execution by FY2026.

Rajeshwar Burla, Vice President, said, “HAM garnered a favourable response from developers as reflected in the increase in the mix of HAM awards from 10% in FY2016 to 48% in H1FY2021. Recent

changes to Hybrid annuity model viz. reduction in period between payment milestones will aid in improved cash conversion cycle, and shift to the marginal cost of funds based lending rate from bank rate earlier for computing interest on annuities mitigates interest rate risk and protects the returns of HAM developers.”

“Around 70 HAM projects involving ₹35,800 crore of debt is expected to become operational in the next two years and are ideal candidates for refinancing where investors prefer revenue-generating assets.”