The Narendra Modi government’s growth agenda has once again come through forcefully in the Union Budget 2023-24. Continuing the trend of the past several years, the Budget for FY24 has bumped up the allocation for capital expenditure (capex) by a record 33 per cent year-on-year (YoY) to Rs 18.1 lakh crore, which includes central government capex of Rs 8.2 lakh crore for FY24(BE), loans to states for capex of Rs 1.3 lakh crore, grants-in-aid of capital assets of Rs 3.7 lakh crore, and Internal and Extra Budgetary Resources (IEBR) of Rs 4.9 lakh crore.
Roads and railways lead the infrastructure growth with a budgetary allocation of nearly Rs 5 lakh crore, a 53 per cent YoY growth. Urban infrastructure segment has been another focus area with an emphasis on urban local body reforms. What does the record allocation mean for the infrastructure sector? Simply put, the growth prospects for companies involved in the business of engineering, procurement and construction (EPC) will be buoyant for the next couple of years. Among the key beneficiaries, according to an analysis by India-Ratings (Ind-Ra), a Fitch Group company, could be KNR Constructions, Dilip Buildcon, Tata Projects, NCC, DRN Infrastructure and J Kumar Projects. Why? Because the order book for these companies are highly focused on the EPC sector.
The outlay for the roads and highways sector has been increased 22 per cent YoY to Rs 2.9 lakh crore for FY24 versus the higher-than-expected spend of Rs 2.4 lakh crore in FY23 (RE). "This sums up the 14 per cent YoY higher allocation to National Highways Authority of India (NHAI), 44 per cent YoY higher allocation to road works, and flat allocation to PM Gram Sadak Yojana," an Ind-Ra analysis said. This means the bidding for road projects and construction will get a significant boost in FY24.
Anand Rathi, Founder & Chairman, Anand Rathi Group says a 33 per cent increase in capital expenditure to Rs 10 lakh crore, the highest ever, will go a long way in building roads, ports, and airports — crucial for making India a reliable investment destination. "Investment of Rs 2.4 lakh crore in Railways is commendable. Boost to capex before the national polls is an indication that Modi is focused on realising his dream of making India a factory for the world," he says.
Experts also point to an increased demand for key raw materials including cement and steel as more construction projects are executed on the ground. The increase in the outlay for railways (Rs 2.40 lakh crore) and PMAY or the Pradhan Mantri Awas Yojana (a 66 per cent increase to over Rs 79,000 crore) as well as creation of 50 new airports and 100 critical transport infra projects for last-mile connectivity bodes well for the cement industry. Of the total outlay for the railways, Rs 37,581 crore has been set aside for new rolling stock. This, experts say, will help railway wagon manufacturers.
"Substantial allocation in railways is in alignment with the National Logistics Policy. Sharp growth of 1.40x towards investment in rolling stock, new lines and electrification shall pave the way for an increase in the freight share of railways and boost last-mile connectivity," says Mehul Pandya, MD & CEO, CareEdge in his analysis post Budget.
In his reaction, Anil Banchhor, CEO & MD, RDC Concrete, the largest independent ready-mix concrete company in India, said the rise in budgeted capital expenditure will lead to an increased demand for cement and steel in FY24. "The budget outlay towards rolling stock for railways will encourage flat steel demand which accounts for 46 per cent of overall demand. Similarly, the rise in the outlay for the Ministry of Road Transport and Highways and the mass rapid transit system by 25 per cent and 40 per cent, respectively, will propel demand for long steel. Thus the overall steel demand will rise 12-14 per cent in FY24. And a jump in capex will also lead to a sharp rise in demand for cement in heavy roads and in the affordable housing sectors," said Banchhor.
Financing Infrastructure Creation: The government is trying to assist and attract more private investments in infrastructure projects by creating Infrastructure Finance Secretariat which will cover sectors that are traditionally dependent on public resources such as railways, roads, urban infrastructure and power. The government has also announced the setting up of an Urban Infrastructure Development Fund of Rs 10,000 crore a year for creating infrastructure in Tier-2 and Tier-3 cities, funded by priority lending shortfall. Allocation for the National Investment and Infrastructure Fund has been kept unchanged at Rs 2,000 crore; however, the FY23 revised estimate is lower than Rs 5,000 crore projected.
Middle-Class Short-changed?
As always, the budget announcements invited positive reactions from India Inc. But the salaried middle-class people are feeling short-changed. The enhanced allocation for PMAY has been applauded by industry. But where are the incentives for the salaried-class, the target customer for the housing market? There were no major direct announcements that could be seen as immediate booster shots, said Anuj Puri, Chairman, ANAROCK Group in his reaction. "The new tax regime offers no benefits that taxpayers can avail of under any sections, including Section 80C – like the previous home loan tax benefits," Puri points out. And shifting to the new tax regime is a question for the future considering it has limited takers so far as compared to the old tax regime that encourages tax breaks, offers rebate on home-loan interest etc. Agrees industry doyen Niranjan Hiranandani, who is also the vice chairman of NAREDCO. “It is a fantastic budget overall but not much has been done for the housing sector," he says. "India needs to create a surplus of houses. There is a surplus of stock in clothing and other sectors, but where is the surplus in housing stock? No direction on pushing the rental housing scheme either,” he adds.
As for the enhanced allocation to PMAY, Puri of ANAROCK has an interesting take. Citing own research, Puri points to the trend reversal in affordable housing segment with the share of new supply in the category (
The budget has also bad news for the rich and the super-rich, the main customers of the continuously thriving luxury housing segment. The FM announced the capping of the capital gains deductions at Rs 10 crore by amending the corresponding sections in the IT Act. Currently, there is no such cap as long as the proceeds were invested in another residential property within the stipulated time-frame. A direct impact of this move will be on the luxury and super-luxury segments in locations like Mumbai, Delhi, Goa, among others, witnessing redevelopment activities.
Overall, the big push to the infra sector bodes well for the country’s economy and, hopefully, will kick-start private investment cycle in equal measures as well.
ashish.sinha@businessworld.in