Union Budget: Infrastructure development for driving economic growth

By Peeyush Naidu

Transportation infrastructure and allied services are critical growth engines for propelling India's rise as an economic superpower. While the public sector has played a dominant role in investing in infrastructure creation, the Government will need increased private sector participation to supplement the rapidly growing industrial demand for a modern and robust transportation and logistics network at par with developed countries.

 

The infrastructure sector was one of the major focus areas in the FY19 budget and saw massive spending on roads, railways, water, irrigation, and urban infrastructure. With all eyes on the upcoming Union Budget, the Government should focus on not only allocation of funds, but also on setting up a road map for clearly outlining the private and government sectors' role in infrastructure creation and operations over the next year. Some interventions which may be considered by the Government for boosting the transportation and logistics sector in the country are proposed below:

Railways:
With elimination of level crossings and other measures, the Railways' track record of safety improved last year. However, there is still a long way to go for Indian Railways. Replacing walking inspection with automated inspections, upgradation of track management system into a dynamic asset maintenance and management system, improved mechanisation of track maintenance organisation across zones and greater use of RCM/CBM and IoT for real time monitoring and predictive maintenance of assets are a few steps,which would go a long way in ensuring safety.

Introduction of semi high speed trains (such as Train 18 and Talgo) on moreroutes as well as fast tracking station redevelopment programme for key metro cities would go a long way in meeting passengers' needs as well as aspirations.

Indian Railways should judiciously invest in track creation to strengthen stressed routes and also open up intrinsically remunerative routes. The government should attract private sector investment in various areas such as station development for effective passenger management and unlocking non-fare revenue, freight terminals for common use mainly through redevelopment of strategic goods sheds, construction of PFT terminals, and owning and maintenance of rolling stock.

There has been heightened focus on increasing the modal share of railways for the movement of inland freight. Improving network capacity through signalling projects, upgrading loop line infrastructure to enable running of longer trains (2x-4x of current size) and completing ongoing line expansion projects on time would go a long way in improving average speed of freight trains.

The government should create an effective ecosystem for the Dedicated Freight Corridors (DFCs) to become game changers in freight logistics. Apart from speedy completion of the eastern and western DFCs as well as sanctioning additional 4 DFCs already planned, there is a pressing need to focus on developing enabling ecosystem such as marketing, commercials and operational strategies to optimize utilization of all this new infrastructure.

Aviation:
To bring down the high taxation on aviation fuel - among the highest in the world, the Government could consider bringing aviation turbine fuel (ATF) and other related fuels (used for commercial scheduled/non-scheduled operations and training purposes) under GST.

To provide a fillip to its marquee Regional Connectivity Scheme to improve air connectivity to remote areas, the Government should provide incentives/budgetary support in terms of promoting use of smaller aircrafts under the scheme, providing additional funds for VGF support under the scheme, and developing airport and seaport infrastructure in Tier-II and Tier-III cities of the country.

High taxes have led airlines to outsource 80-85% of the country's $1.4 billion MRO business to international providers. The government must focus on reducing the tax burden impacting the growth of MRO industry by reducing GST rates, and removing instances of tax on certainitems which attract an import duty as well as a GST over and above that.

Logistics:
There has been a thrust on development of multimodal logistics parks (MMLPs) in the past few years to boost multimodality and integration of logistics services in the country. In addition to the proposal for developing 35 MMLPs across the country, the government has also drafted an MMLP Policy to serve as the guiding document for the development of MMLPs in the country.

Issues such as regulatory overlap between multiple agencies for MMLP development, acquisition of land for the construction of the infrastructure among others have been impediments to the development process. Some measures that may be undertaken by the government to foster logistics infrastructure development include:

Setting up and empowering an independent department for Logistics and Trade/ Freight Facilitation. Instead of the present context wheremultiple agencies undertakedevelopment of MMLPs - leading to inefficiency in infrastructure planning and regulatory delays in approvals, this department should act as the nodal agency for providing approvals for all kind of terminal infrastructure, including MMLPs, ICDs, CFSs, PFTs,and logistics parks.

This new department should developperspective plans and vision documents for development of such facilities at non-competing locations to bring in efficiencies in the infrastructure planning and development process.

Delineation of a dedicated land bank for logistics facilities could be considered across all states to streamline and speed up the land acquisition process.

There is a need to boost private sector participation in logistics infrastructure creation. The focus should also be on developing and operating common user terminals with the government playing a facilitative role for easy access to land, providing road/rail connectivity to the facility, and supporting infrastructure in terms of water, electricity and fuel.

The availability and adequacy of storage infrastructure across different commodity groups, especially for industrial goods, is a constraint in the country. Also, the lack of minimum quality standards prescribed by a government agency has led to mushrooming of facilities across the country with sub-optimal utilisation. There is scope for prescribing minimum standards/ norms for establishment of quality facilities, ensuring ease of seeking approvals through a single window mechanism, etc.

(The author is partner, Deloitte India)