Why the energy and infrastructure sectors need government attention – Firstpost

After getting a fresh mandate for a third consecutive term, the NDA government is all set to present the Union Budget 2024 in July. With India planning to become the world’s third largest economy, the budget is expected to have a major focus on infrastructure spending across sectors. Investment in these sectors would not only be fundamental to expand the capital expenditure base but would also be essential to boost urban growth, reduce greenhouse gas emissions to achieve sustainable growth in the coming years.

Based on the recent policies and initiatives of the federal government, we expect initiatives and innovative policies in the upcoming Union Budget 2024 in the following directions.

Total Infrastructure Allocation

In the interim budget for 2024-25, the budget allocation for the infrastructure sector has been increased to Rs 11.1 lakh crore, which is about 3.4 per cent of GDP. We expect a similar impetus to be carried over into the upcoming budget. The need to increase infrastructure spending is critical for India to become a $30 trillion economy by 2047, and the need to support the growth of second-tier cities, rural and semi-rural areas is felt across the spectrum.

Transport

With the increase in migration to urban India, transport has become a key lever for growth and livelihoods. We expect robust private investment in ports, airports, roads and real estate in the coming years, which will have to be supported by fiscal incentives and programmes. We expect robust fiscal spending and increased allocations under existing programmes such as UDAAN, Bharatmala, Sagarmala and Bharat Net and the Gati Shakti Master Plan.

I. Railways

India is modernising its existing rail infrastructure by introducing new transport corridors along with developing new modes of rail transport such as the Hyperloop system which is currently under discussion with the Swiss government. To ensure rapid urban movement, Rs 24,931 crore has been allocated under the interim budget for the development of metro projects, which is 7.57 per cent more than the previous year. Three economic corridors, namely port connectivity corridors, power, minerals and cement corridors and high traffic corridors in India, will also increase the efficiency and effectiveness of the rail sector. India is also developing the India-Middle East-Europe Economic Corridor which is expected to improve connectivity between the nations.
‘
II. Roads

Apart from railways, road transport is also set to receive a huge capital boost, as seen by the 20% increase in NHAI’s capital expenditure in fiscal 2023-24. We can expect the Budget to also lay the groundwork for changes in PPP structures across the sector to make the process more accountable, improve VGF financing, etc., so that projects meet their schedules and do not get embroiled in delays and disputes. This edition of the Union Budget is also expected to further encourage the development of e-vehicles, charging infrastructure, battery swapping stations, energy storage systems and the overall development of the hybrid vehicle ecosystem. Moreover, in light of the recent incidents, we can also expect budget allocation to improve the safety and reliability of rail and road infrastructure.

III. Ports

As India plans to connect with all the major markets across the world, we expect significant funding for port development through programmes like Sagarmala and hub development programmes under the Green Hydrogen Mission.

Power

One of the key areas of focus in expanding the energy sector and ensuring access to energy for all is the development of grid connectivity. Strengthening the grid infrastructure and providing funds for repairs and maintenance of the national grid can help improve energy accessibility. With the increase in electricity supply, boosted by the addition of renewable energy, there is a need to increase investment in the maintenance of grid infrastructure, as well as provide the necessary support to state-owned electricity distribution companies, which are struggling with a continuous cycle of debt.

Alternative energy and fuel sources

India is not only looking at solar and wind to achieve its net zero emissions targets but also at other green avenues such as green hydrogen, biogas, biomethane and ethanol fuel blending. We expect that a growth-oriented tax regime coupled with incentives to encourage domestic manufacturing under the Make in India initiative could be beneficial to increase manufacturing capacity in these sectors.

I. Sunny

Last year, the government reintroduced the Production Linked Incentive Scheme for high-efficiency solar panel manufacturing with an initial budget of Rs 24,000 crore. Given that the demand for solar energy is set to increase to meet the ambitious net zero emission targets, we expect the financial allocation in the solar sector to increase towards indigenous solar panel manufacturing.

II. Hydrogen

Further, as the government aims to establish a green hydrogen production capacity of 5 MMT per annum, it has earmarked Rs 19,744 crore under the National Green Hydrogen Mission and Strategic Interventions for Green Hydrogen Transition (SIGHT) programme for R&D and pilot projects for safe use, transportation of hydrogen and domestic production of electrolysers. Based on the long-term vision to achieve sustainable development, the government can allocate funds for scaling up production of electrolysers, storage and transportation of hydrogen and creating the necessary demand for it.

III. Biogas

The Union government also aims to promote biogas generation as it plans to make blending of compressed biogas mandatory from 2025. There may also be expansion of city gas grid to facilitate transportation of biogas and get grid connection for future compressed biogas plants.

Overall, we can expect tax incentives to drive the deployment of energy-efficient solutions and digital infrastructure across all infrastructure sectors.

Real Estate and Hospitality

As average household purchasing power increases, so does the tourism and real estate sector. Over the past five years, there has been a steady increase in the contribution of tourism and hospitality to GDP, averaging around 6 percent per year. To maintain strong momentum, it would be necessary to provide incentives for the real estate and hospitality sector, which could include granting infrastructure status to individual tax incentives.

Application

As India looks to become a five trillion dollar economy in the coming years, it needs to use all possible means to establish strong foundations. The resulting infrastructure boost can not only create a large capital base for growth markets but also provide job security and a base for urban expansion over a long period of time. Addressing sector-specific issues through providing adequate financial assistance and allocation can not only help India achieve sustainable development, growth and stability but can also be the key to making India self-reliant and a leader in the new green world.

The author is a Partner, IndusLaw. The views expressed in the above text are personal and solely those of the author. They do not necessarily reflect the views of Firstpost.