Union Budget 2024: What can India’s infra sector expect from Nirmala Sitharaman?

As the current government enters its third consecutive term, expectations for India's FY25 Union Budget are high, particularly from the infrastructure sector. The government is anticipated to continue its robust infrastructure push with a projected expenditure of Rs 143 lakh crore (US$ 1.72 trillion) up to FY30. This significant investment is expected to enhance economic productivity, create jobs, and improve the overall experience of citizens.

One of the key areas where the budget could make a significant impact is the sustained development of renewable energy capacity. Renewable power generating capacity has seen a remarkable increase, from constituting 17% of the total installed capacity in FY17 to 33% currently, with expectations to reach 45% by FY32. To achieve this ambitious target, the integration of storage solutions or fixed dispatch supply is crucial. Storage options, such as batteries, are essential for balancing the intermittent nature of renewable energy sources. Additionally, large spinning reserves like hydro and gas power plants will play a vital role in maintaining grid stability as renewable energy capacity expands.

India has about 25GW of gas-based power plants, most of which are currently underutilized. Leveraging these plants as a spinning reserve can provide a reliable backup until adequate storage capacity is developed. This approach ensures a smoother transition to a predominantly renewable energy grid while maximizing existing resources.

Continued investment in the transmission sector and an increased focus on improving the distribution sector, including the privatization of DISCOMS, are essential. Securing connectivity to the inter-state transmission network is emerging as a key bottleneck in capacity addition planning of independent power producers.  The health of DISCOMS has been a long-standing issue indicating need for improving collection efficiency. In this regard, progress made in smart meter rollouts has been encouraging, but more needs to be done to ensure financial stability and efficient power distribution.

The size of India’s logistics market is estimated to be Rs 26.3 lakh crore (US$ 317.3 billion) in 2024 and is expected to reach Rs 40.2 lakh crore (US$ 484.43 billion) by 2029. India improved its ranking on World Bank's Logistics Performance Index Report 2023 to 38 out of 139 countries from 54 in 2014. The Government targets to raise its ranking to 25 and reduce logistics cost from 14% to 8% of GDP over the next five years.

The development of roads and highways remains a priority, with a focus on monetization through Toll Operate Transfer (TOT) or other mechanisms.  Alongside, there should be an emphasis on safety, the incorporation of advanced technologies, and ensuring that roads are environmentally friendly. These initiatives will not only enhance connectivity but also contribute to economic growth and environmental sustainability. 

Private participation in the railways sector is another critical area. Upgrading railway networks to increase speed and safety is essential for modernizing this vital mode of transport. Public-Private Partnerships (PPPs) can be instrumental in this regard, with models such as Viability Gap Funding (VGF) and hybrid annuity contracts providing the necessary financial incentives. Such collaborations can bring in much-needed investments and expertise, improving the overall efficiency and service quality of the railways. The increase of allocation to the Ministry of Railways by 5.8% from last year to Rs 2.76 lakh crore (US$ 33 billion) in the interim budget FY25 was a step in the right direction.

Enhanced bidding and procurement of compressed biogas (CBG) offer significant environmental benefits. The government should focus on policies that promote the production and utilization of CBG, providing necessary incentives and creating a favourable regulatory environment. This not only addresses waste management issues but also contributes to a cleaner and more sustainable energy mix.

Water scarcity is a pressing issue in India, and policy interventions at the state and city levels are crucial to address this challenge. Encouraging private participation in the water sector can help reduce wastage, enhance the reliability and quality of supply, and ensure sustainable management of this vital resource. Central programs need to be bolstered with local initiatives to create a comprehensive approach to water conservation and management.

Increased private participation in the defence sector, particularly in local manufacturing, is another area where policy interventions are needed. Intellectual property considerations must be addressed to foster innovation and self-reliance. This approach will not only strengthen India's defence capabilities but also stimulate economic growth through the creation of high-tech manufacturing jobs.

Waste and sewage treatment are critical components of a circular economy. Setting targets for Producer Responsibility Organizations (PROs) can drive progress in this area. Effective waste management policies can reduce environmental pollution and promote the recycling and reuse of materials, contributing to a more sustainable economy.

A predictable tax regime is essential for attracting investors, especially overseas investors who provide patient capital. The government should consider increasing incentives for localized production, creating a stable and attractive investment climate. Such measures can boost economic growth and ensure long-term sustainability.

Lastly, all new infrastructure developments should be designed with their environmental impact in mind. Projects should strive to be as sustainable as possible and align with India's ambition of achieving net zero emissions by 2070. Sustainable practices and technologies must be integrated into every phase of infrastructure development to ensure that growth is not achieved at the expense of the environment.

In conclusion, through targeted investments and policy interventions, the government can enhance economic productivity, create jobs, and improve citizen experiences while ensuring environmental sustainability. 

Views are personal. The author is Partner, Deloitte India