Budget may retain focus on rapid infra growth with higher capex for roads sector: Report

Budget may retain focus on rapid infra growth with higher capex for roads sector: Report

The government is poised to retain its focus on rapid infrastructure development this fiscal, with plans to potentially increase capital expenditure allocations for the Ministry of Road Transport and Highways (MoRTH) in the upcoming budget for FY25, according to a report in Mint.

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The increase in allocations is expected to be moderate, likely ranging between 5 percent and 10 percent above the FY24 revised estimates, the report said. This adjustment comes as the government anticipates a significant rise in private sector investments in road construction projects, particularly under the build-operate-transfer (BOT) toll model. Private investments in FY24 reached Rs 34,805 crore and are projected to nearly double in FY25, up from Rs 20,000 crore in FY23.

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The BOT toll projects allow private sector participants to assume construction risks and invest in road development, thereby reducing the burden on government spending. Approximately 20-25 percent of highway projects this year are expected to be awarded under the BOT toll model, easing the government's financial outlay for infrastructure development.

In the interim budget for FY25, presented in February, the government increased the MoRTH allocation to Rs 2.72 trillion, up from Rs 2.64 trillion in revised estimates for FY24 and Rs 2.58 trillion in FY23. The upcoming full budget for FY25, scheduled in late July, may see moderate increases in MoRTH allocations.

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The higher allocation is intended to accelerate highway construction and address the substantial debt of Rs 3.5 trillion accrued by the National Highways Authority of India (NHAI) by the end of FY24. The government aims to construct 12,000 to 13,000 km of national highways and award contracts for similar lengths to sustain momentum in highway construction in the coming years.

To bolster private sector participation, amendments have been made to the BOT toll model concession agreement, aiming to enhance traffic estimation accuracy and increase lender interest in funding such projects, according to CRISIL. Ratings agencies CRISIL and India Ratings and Research note that while budgetary allocations in the roads sector have shown robust growth over the past decade, there is now a moderation as the government seeks greater private sector involvement in infrastructure development.