Despite the pressure to slow the pace of budgetary capex on the infrastructure sector, the allocation to the railways sector in the upcoming budget is likely to stay elevated. “At the very least, the gross budgetary support (GBS) will remain at the same level as announced in the Interim Budge. It may even be higher at Rs 2.6 trillion,” a senior official in the ministry of railways told FE.
In the interim budget 2024-25, the finance minister Nirmala Sitharaman had provided GBS of Rs 2,52,200 crore to the railways in addition to the Rs 10,000 crore of extra budgetary resources (EBR).
“The infrastructure push will continue. The railways will remain a critical area from the investment point of view over the next 10 years,” said the official.
Experts said that since the spending on roads and highways construction — which was allocated Rs 2.78 trillion in the Interim Budget — is close to “the fag end of the cycle,” the railways is going to be the next big investment area.
“The spending on railways is not going to slow down because the target is to reduce the logistics cost as a percentage of GDP. Every part of the railways infra, be it wagons and coaches, signalling, new lines, gauge conversion, high-speed trains, will get major investments,” said Harshit Kapadia, VP, Elara Capital.
Some experts suggest that allocation to railways is likely to increase this year as the government is looking at safety and passengers’ comfort as key priority areas. “In the wake of recent train accident in West Bengal, the installation of Kavach automatic train protection system will speed up,” said an analyst.
In terms of capex financing, the share of GBS has increased rapidly over the past few years whereas the EBR has gone down during the same period. EBR includes borrowing from arms like IRFC, institutional financing, FDI and public-private partnerships.
“Typically, the allocation towards EBR means that the government has an option to delay the investments if they want to. But with more money being spent through budgetary support, it shows that the government is serious about spending and the capex would happen immediately,” said Kapadia.
With Reserve Bank of India (RBI) set to pay record-breaking dividend of Rs 2.11 trillion to the government, the government can skillfully balance the spending between providing both consumption boost and elevated capex plans.
“Initially, there were fears that some of the resources in the full-year budget will shift towards boosting private consumption. As a result, sectors like roads and railways could see a cut back in spending. But there’s now ample room for them to continue with heavy capex outlay,” said an analyst with a brokerage firm.
