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Union Budget: The infrastructure story

Source : BUSINESS_STANDARD
Last Updated: Sun, Mar 14, 2010 19:30 hrs

On February 26, even before the dust had settled in Parliament, media headlines screamed: "46 per cent of outlays for infrastructure." Based on this headline, commentators, for the next few days, mouthed the common refrain that this Budget was truly weighted towards infrastructure development, and that it marked an epochal shift. Was it?

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While the dust was settling, Bidisha Ganguly, economic research head, the Confederation of Indian Industry (CII), made a quick dive for relevant statistics and came up with a few home truths. There evidently is no epochal shift on the 46 per cent of Plan allocation. Infrastructure allocations had touched a high of 48.6 per cent in 2005-06.

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But yes, there has been a staggering increase of Rs 0.87 lakh crore for infrastructure, from Rs 0.86 lakh crore in 2007-08 (the first year of the 11th Five Year Plan) to Rs 1.73 lakh crore in 2010-11. This clearly underscores the UPA government's commitment to put its money where its mouth is. To understand the scale, note that this increase of Rs 0.87 lakh crore is equal to what is currently earmarked for paying salaries and other current expenses of the three armed forces of India.

Rural development and infrastructure have clearly been the thrust areas of the UPA's governance plank. The steep rise in allocations for infrastructure in recent years is clear.

Railway Budget 2010

ALLOCATIONS FOR INFRA IN THE UNION BUDGET
Year Infrastructure
allocation
(Rs lakh crore)
As % of
Plan

allocation
2001 - 02 0.34 33.9
2002 - 03 0.36 31.8
2003 - 04 0.54 44.9
2004 - 05 0.6 41.5
2005 - 06 0.7 48.6
2006 - 07 0.81 46.9
2007 - 08 0.86 41.9
2008 - 09 0.97 39.8
2009 - 10 1.55 47.7
2010 - 11 1.73 46.5

A few perspectives on this are in order:
Perspective one: The total size of the Union Budget is Rs 11.09 lakh crore. The infrastructure allocation is thus 16 per cent of the Union Budget.

Perspective two: The Union Budget is split between non-Plan and Plan expenditures. An amount of Rs 7.36 lakh crore has been allocated towards the non-Plan expenditure and Rs 3.73 lakh crore are allocated towards the Plan expenditure. Infrastructure development falls into the Plan expenditure category.

Perspective three: Of the Rs 3.73 lakh crore of Plan expenditure, the infrastructure allocation is Rs 1.73 lakh crore. This is the 46 per cent of Plan allocation that is being applauded.

The question then is: What is this Rs 1.73 lakh crore, or 46 per cent, composed of.

OUTLAYS FOR INFRA UNDER PLAN EXPENDITURE
(Rs crore) 2007-08 2008-09 2009-10 2010-11
Central Plan Outlay (Budget Support)
on Infrastructure (including others)
66,991 74,760 1,20,946 1,37,485
Ministry of Civil Aviation 200 190 190 2,000
Ministry of Communication and IT 2,115 2,655 3,581 5,320
Ministry of Housing and Urban Poverty Alleviation 500 850 850 1,000
Ministry of Power 5,483 6,000 9,230 10,630
Ministry of Road Transport and Highways 12,499 13,450 15,450 18,000
Department of Rural Development 27,500 31,500 62,670 66,100
Department of Drinking Water Supply 7,560 8,500 9,200 10,580
Ministry of Urban Development 2,300 2,500 3,060 5,400
Railways 6,886 7,100 14,600 15,875
Central Assistance for States and UTs
on Infrastructure (including others)
19,010 22,084 34,187 36,069
MPs Local Area Development Scheme 1,580 1,580 1,580 1,580
Accelerated Irrigation Benefit Programme
and other water source programmes
3,580 5,550 9,700 11,500
Roads & Bridges 1,512 1,606 1,989 1,819
Backward Region Grant Fund 5,800 5,800 5,800 7,300
JNNURM 4,988 6,248 11,619 11,619
Annual capital allowance for other project 0 0 1550 1000
Total spending on infrastructure 86,000 96,844 1,55,133 1,73,554

Some conclusions are in order.
One: At some stage, a certain amount of hair-splitting is indeed required to determine how much of the allocations actually goes into creation of infrastructure assets. For that, we will have to wait till the government gets its act together on collecting and disseminating statistics on gross capital formation in infrastructure. Currently, there exists a certain amount of confusion because "revenue expenditure" and "capital formation" often get blurred in the statistics. For example, the allocation of Rs 40,100 crore for the National Rural Employment Guarantee Scheme (NREGS) in the Rural Development Section, does not all go towards creating infrastructure. But this is the way the finance ministry currently "defines" infrastructure!

Two: The break-up of the outlay across different heads of expenditure provides some interesting insights:

  • Civil Aviation has jumped from a paltry Rs 200 crore to a huge Rs 2,000 crore. No doubt, the bulk of it is for bailing out Air India, and hopefully, some is left over for modernisation of airports.
  • The Ministry of New and Renewable Energy sees a 40 per cent increase in allocation from a steady Rs 620 crore earlier to Rs 1,000 crore now.
  • The power and the road ministries get 15 per cent and 16 per cent increase, respectively.
  • The shipping ministry has seen allocations stagnate around the Rs 600-crore level. Clearly, we need more aggression in this sector.
  • The Ministry of Urban Development gets a 76 per cent increase, whereas Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is left at the same level as last year.
  • At the state level, irrigation gets a boost with an increase of Rs 1,800 crore (18 per cent).
  • The Bundelkhand region gets a whopping Rs 1,200 crore for drought-mitigation.

    Three: As per the 11th Plan, the nation needs $500 billion (Rs 22.5 lakh crore), or $100 billion per annum. This translates into a requirement of Rs 4.5 lakh crore per annum. Of this Rs 4.5 lakh crore, the Union Budget is able to subscribe to Rs 1.73 lakh crore, or roughly 38 per cent. Well, that is very much in order, considering 30 per cent is slated to come from public private partnerships (PPP), and the balance of 32 per cent from states and off-Budget resources.

    Thus, while infrastructure outlays account for 15 per cent of the overall Budget and 46 per cent of Plan outlay, it is roughly 38 per cent of what the nation needs every year to support the Eleventh Plan vision. To this extent, the government needs our whole-hearted appreciation for internal consistency, and requires us to stand firmly for the infrastructure-building imperative.

    The infrastructure story is hopefully feeding into the India (gradually) shining story.


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