While the first term of the NDA government at the Centre saw infrastructure being treated as a prime focus area, the second term looks set to follow through with fresh thrust highways and road projects.
In 2014, the Centre had allocated Rs 1.91 lakh crore for infrastructure development. This figure grew at a breathtaking pace through the consecutive budgets, touching Rs 4.94 lakh crore in 2017-18, and Rs 5.97 lakh crore in the budget of 2018-19. Officials say that the sector is likely to get the maximum focus after social sectors in the soon-to-be-announced budget too.
Aside from an increase in infrastructure spending, officials note that the government will also look at measures to contain rising input costs, policy reforms and speed up stalled or delayed projects. All this put together is expected to boost construction activity and some public sector companies may turn out to be money spinners over the next few years helped by strong order inflows.
To be sure, the BJP’s manifesto promised Rs 100 lakh crore of capital investment in infrastructure by 2024. It is a huge commitment considering that the government’s expenditure on roads and railways was about Rs 1.2 lakh crore in FY19.
“Transport infrastructure is expected to see a major jump with an estimated Rs 30 lakh crore of capital outlay over the next five years. Of these, up to Rs 9 lakh crore is expected to be pumped into the roads and highways sector. As a result, the construction companies are also likely to be the major beneficiaries and will witness strong order inflows, estimated between Rs 15-18 lakh crore on the basis of these infrastructure CapEx plans,” Shubham Jain, vice-president and group head, corporate ratings, ICRA said.
For instance, state-owned construction firm NBCC expects Rs 12,500-15,000 crore of order inflows in FY20. The firm has awarded about Rs 33,000 crore worth of projects of the overall order book of Rs 75,000 crore. It expects to award projects worth about Rs 15,000 crore in the current fiscal year.
“The increase in outlay for infrastructure is sure to enhance the order visibility for the domestic capital goods sector. Also, the PSUs companies, which are equipped with vast resources, have the power to pilot these large-scale developments which will also have a derived-demand effect on the cement, steel, mining and other manufacturing sectors,” said Arup Roy Choudhury, former chairman and managing director of NBCC.
In May 2016, the Cabinet also approved the first-ever policy for the capital goods sector with the objective of increasing production of capital goods to Rs 7.5 lakh crore by 2025. Recall that, in 2018, listed capital goods, construction and infrastructure companies reported combined order wins of more than Rs 2.67 lakh crore - a 30 per cent jump from the Rs 2.05 lakh reported to the exchanges in 2017, and also the highest since 2015.
Notably, over 93 per cent of these orders came from the central and state governments, PSUs, and the National Highways Authority of India (NHAI). Orders from states doubled from 2017 to 2018 and their share increased to 21 per cent of new orders. NHAI orders, at nearly a quarter of all new orders, were also at a four-year high, which can be attributed to the authority’s shift in focus two years ago from the build-operate-transfer (BOT) model to the engineering, procurement and construction (EPC) model.
While some analysts remain confident about the improvement in order inflows, a section of analysts expect the spotlight to move towards order execution and away from new orders. “A lot of projects are stuck in the last stage for want of mezzanine funds, which is unlikely to happen soon. The government is now expected to expedite the implementation rate, encourage private sector participation and NHAI would now be expected to provide further thrust to financing the large scale development in the sector,” said Ashish K Nainan, research analyst, Care Ratings.
Out of the total 1,424 infrastructure projects under implementation, 444 are mega projects with a project outlay of over Rs 1,000 crore and the combined costs of these projects constitute 80 per cent of the total project development outlay. Nainan pointed out that the anticipated cost of completion of these projects has grown from an original cost outlay of Rs 18.17 lakh crore to Rs 21.34 lakh crore.
Meanwhile, reports say the government may consider re-introduction of tax-free bonds to raise capital for infrastructure projects. If that happens, the NHAI could be an immediate beneficiary as the introduction of tax-free bonds to boost investment is an established way of raising funds by PSU infra companies.
Infra to attract investment, orders
In 2014, the Centre had allocated Rs 1.91 lakh crore for infrastructure development. This grew at a breathtaking pace through consecutive budgets, touching Rs 4.94 lakh crore in 2017-18, and Rs 5.97 lakh crore in 2018-19. Officials say that the sector is likely to get maximum focus after social sectors in the soon-to-be announced budget too.
The BJP’s manifesto promised Rs 100 lakh crore of capital investment in infrastructure by 2024. It is a huge commitment considering that public expenditure on roads and railways was about Rs 1.2 lakh crore in FY19
Orders are also expected to begin flowing smoothly. for instance, state-owned construction firm NBCC expects Rs 12,500-15,000 crore of order inflows in FY20. It has awarded about Rs 33,000 crore worth of projects out of the overall order book of Rs 75,000 crore and expects to award projects worth about Rs 15,000 crore in FY20.
in 2018, listed capital goods, construction and infrastructure companies reported combined order wins of more than Rs 2.67 lakh crore — a 30 per cent jump from the Rs 2.05 lakh reported in 2017 and the highest since 2015