The FM focused on infrastructure as part of her second theme for the Union Budget i.e. economic development. As regards infrastructure, the focus has been on transportation and connectivity as well as increasing the solar power generation capacity, in the backdrop of the larger theme of 'Aspirational India' being development for all.

In line with the overall "Sabka Saath, Sabka Vikas, Sabka Vishwas" principle, the FM also proposed that the National Skill Development Agency would give a special thrust to infrastructure-focused skill development opportunities in light of the huge employment potential of the infrastructure sector. A project preparation facility for infrastructure projects is also proposed to be set up. This step is significant, given that the lack of capacity with the relevant expertise has been identified as a major requirement for the sector.


Tax Exemptions for Sovereign Wealth Funds

One of the most significant announcements for the infrastructure sector was the 100% tax exemption granted to sovereign wealth funds of foreign governments in respect of their interest, dividend and capital gains income from investments made in infrastructure and other notified sectors before March 21, 2024. The only conditionality placed on such exemption is a minimum lock-in period of 3 years.

The aforesaid move should definitely incentivize further investment in India by sovereign wealth funds, that generally make longer term investments in socially relevant sectors as compared to other foreign funds.

National Infrastructure Pipeline

In consonance with one of the prominent themes of the FM for the Union Budget i.e. a caring society, the Union Budget aims to improve the physical quality of life through the NIP. The NIP was launched by the FM on December 31, 2019. As per the PIB release dated December 31, 2020, the total project capital expenditure in infrastructure sectors in India during the fiscals 2020 to 2025 was projected at over INR 10.2 trillion.

The FM indicated that the NIP would consist of over 6,500 projects. As per the FM, about INR 220 billion has already been provided, as support to NIP, which would cater for equity support to infrastructure finance companies such as IIFCL and a subsidiary of NIIF. As per the Union Budget, such companies would leverage it, as permissible, to create financing pipeline of more than INR 1 trillion which would in turn create a major source of long-term debt for infrastructure projects.

In our view, the NIP is a critical measure that would boost investments in the infrastructure sector. However, given the mammoth proposal, the financing of the NIP may be a challenge.


In her speech, the FM hinted about the Central Government's intention to provide a push for solarization of farms. The FM has proposed support to the farmers for setting up solar powered hand pumps and grid connected solar plants on barren lands owned by farmers. The Central Government hopes that the sale of power generated from the farmers' solar power plants through the grid would provide promising income to the farmers.

Acknowledging India's best effort commitments to the Paris Agreement signed in 2015, the FM has recommended that the concerned power utilities close old thermal power plants having high carbon emissions than permitted.

The FM also urged the State Governments and Union Territories to adopt smart metering systems instead of the conventional ones which would not only help in checking payment defaults (due to prepaid metering) but will also provide the customer with the ability to choose the power supplier. This is a welcome move, but many more reforms are required to aid ailing DISCOMs.

In the passing, the FM also spoke about deliberations by the Government on honoring of the terms of its contracts. It may be inferred that this, in part, has to do with the recent arm twisting of power developers by state DISCOMs/State Governments by renegotiating the power tariffs and the terms and conditions of the renewable power purchase agreements.

The FM proposed an allocation of INR 220 billion for the power and renewable energy sector. The FM has proposed to extend the new concessional corporate tax rate of 15% to new domestic companies engaged in the generation of electricity in order to incentivize investment in the power sector.

With respect to the oil and gas sector, the FM announced that reforms will be undertaken to make natural gas price discovery more transparent and facilitate ease of transactions. Additionally, the FM also announced that the existing national gas grid will be expanded from 16,200 km to 27,000 km.

While the FM acknowledged the never ending stress over DISCOMs, nothing was proposed on how the Central Government would address the present situation. In her previous budget speech in July 2019, the FM mentioned that the performance of the efforts to address the DISCOM stress including the success of Central Government's UDAY Scheme is being evaluated. However, the FM did not discuss the same in this speech. It may be advisable for the Central Government to focus on the more critical concerns that have been looming over the power sector such as, fuel supply issues, easing the renewable purchase obligations, cross - subsidy surcharge, pilferage and transmission losses, transmission capacity augmentation and open access availability, payment defaults by DISCOMs and compliance of their obligations under the power purchase agreements (such as providing payment securities to the developer/power supplier), the long pending amendments to the Electricity Act, 2003 and the captive power rules, anti-dumping, building indigenous capabilities for renewal equipment and technologies etc.


The FM announced that accelerated development of highways would be undertaken, including development of 2,500 km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways. The Delhi-Mumbai Expressway and two other packages are targeted to be completed by 2023 and work on the Chennai-Bengaluru Expressway would also be started.

The FM also stated that the FASTag mechanism encourages towards greater commercialization of highways enabling the NHAI to raise more resources. It was proposed to monetize at least 12 lots of highway bundles of over 6,000 km before 2024.

While monetization of 12 lots of highway bundles is a welcome move, it would be important to see whether timely monetization is actually achieved in a manner that enables NHAI to decrease its debt burden. Given the tepid response received for the previous TOT bundles, it would be crucial to ascertain whether the Central Government proposes another model for the monetization or amends the TOT model as envisaged by the Cabinet in November 2019. The geographies of the identified bundles would be key.


The FM envisions the setting up of "Kisan Rail" through PPP arrangements, with a view to attaining a seamless national cold supply chain for perishables, inclusive of milk, meat and fish. Equipping express and freight trains with refrigerated coaches is also identified under the theme "Aspirational India' in the Union Budget.

As regards railways, the Central Government's focus has been on fostering economic development through optimization of costs and ensuring greater connectivity through the following:

  • Increase in the number of Tejas type trains;
  • High speed train between Mumbai and Ahmedabad;
  • Setting-up a large solar power capacity alongside the rail tracks on the land owned by the railways;
  • Re-development projects for 4 stations and operation of 150 passenger trains would be done through PPP mode;
  • Grant of financial assistance for the 148 km long Bengaluru Suburban transport project;

The Union Budget reinforces the importance of raising resources through PPP for network strengthening, connectivity and modernization of Indian Railways. In light of the announcement by the FM that bidding for various PPP projects is underway, it is clear that effective steps are being taken to make the sector on railways amenable to private investment. Insofar as the setting up of large solar power capacity alongside the rail tracks on the land owned by the railways has been envisioned, it remains unclear whether land owned by private players will be excluded for the purpose, in a scenario where the stretch of land alongside the rail tracks owned by the Indian Railways is not contiguous.


Noting the rapid growth in air traffic in the country, the FM announced that 100 more airports would be developed by 2024 to support the Regional Connectivity Scheme i.e. UDAN. It was also proposed that the air fleet number is expected to double from the present number of 600 by 2024.

The development of new airports would ease the strain on the existing airports. However, it would be important to see whether such development is done through the PPP mode or otherwise. Furthermore, given the news reports from January 2020 suggesting that the Central Government may introduce a cap on the number of projects a bidder can get, it would be interesting to see whether such move leads to wider participation by private parties in the sector and more realistic bids.


In order to increase the efficiency of sea-ports, the FM proposed to implement a governance framework in line with global benchmarks. Further, it has also been proposed to corporatize at least 1 major port and subsequently list it on the stock exchanges.

As regards inland waterways, the FM announced that the Jal Vikas Marg on the 1,620 km Haldia-Allahabad stretch of river Ganga would be completed. Further, the 890 km Dhubri-Sadiya connectivity was proposed to be done by 2022. The FM announced that in consonance with Arth Ganga, plans are being prepared to energize economic activity along river banks.

Corporatization of ports would go a large way in improving operational efficiencies which has been a challenge with India's major ports. It would be interesting to see the way this would be achieved and to also evaluate the global benchmarks that are introduced by the Central Government.


The FM announced that a National Logistics Policy would be released clarifying the roles of the Central Government, the State Governments and other regulators. A single window e-logistics market is also envisaged under the policy.

Given that a National Logistics Policy has been in the works for a while now, it would be important to ensure that the aforesaid announcement of the FM is implemented timely and efficiently. Considering that logistics involve inter-state movement, it would be crucial for the policy to harmonize the roles of the Central Government and the various State Governments, whilst at the same time bringing down the cost of logistics and making the Indian logistics sector globally competitive.


With respect to infrastructure, the proposals made by the FM aim to address pressing concerns regarding the lack of investments therein. The proposal to exempt investments by sovereign wealth funds in infrastructure projects and to further the NIP should go a long way in boosting investments in the sector.

Special emphasis has also been laid on development of India's solar power generation capacity whilst at the same time attempting to alleviate the present financial condition of DISCOMs. As for transportation, with the proposal to provide around INR 1.70 trillion for transport infrastructure in 2020-21, the focus has as always been on improving connectivity and efficiency.

Having said that, issues such as protracted dispute resolution, snarls in land acquisition and approvals, and issues around contract enforcement would still need to be addressed so as to make the Indian infrastructure sector globally competitive and attractive. The FM in passing has mentioned amendments to the Indian Contract Act, 1872 to strengthen contract enforcement. How this would affect government entities reneging on contracts with private entities remains to be seen. In any case, States and the Central Government should be cautious of recourse that may be sought in relation to foreign investment through bilateral investment treaties.

Apart from boosting investments, the steps towards capacity building as well as increased outlays also indicates how serious the Central Government is in addressing worrying unemployment numbers.

All in all, the announcements in relation to the infrastructure sector are a continuation of previous policies with suitable amendments to the scope in the backdrop of the larger social aims that underly this Union Budget.

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