Jal nal, roads get record outlays: Surety bonds replace bank guarantees, free up capital

Private sector infra investments will also benefit from changes outlined in the budget. With typically 20 per cent of the funds getting locked up in bank guarantees, this is expected to free up an estimated Rs 8 lakh crore of private sector funds over the entire spread of National Infrastructure Pipeline projects.

“To reduce indirect cost for suppliers and work-contractors, the use of surety bonds as a substitute for bank guarantee will be made acceptable in government procurements. Businesses such as gold imports may also find this useful. IRDAI has given the framework for issue of surety bonds by insurance companies,” Finance Minister Nirmala Sitharaman said.

A surety bond is provided by the insurance company on behalf of the contractor to the entity, which is awarding the project. When a principal breaks a bond’s terms, the harmed party can make a claim on the bond to recover losses, replacing the existing system of bank guarantee. Industry chambers CII and FICCI as well as Ministry of Road Transport and Highways had suggested introduction of surety bonds by general insurance companies ahead of the budget.

At the heart of the Budget’s Capex plan is the PM Gati Shakti scheme driven by seven engines — roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. In addition, the public spending includes an ambitious plan to build 80 lakh houses in the upcoming financial year, for which the government has allocated Rs 48,000 crore.

During 2022-23, the government will also award contracts for laying optical fibre in all villages, including remote areas, under the BharatNet project through a public-private partnership. The completion of this project is expected in 2025. Including this, and other telecom sector projects, the Ministry of Communications has been allocated Rs 1.05 lakh crore. “The capex allocations are broad-based with the government not only focusing on the traditional infrastructure sectors, but also new economy imperatives such as climate and digital investments…But those looking for a greater policy thrust on social expenditure and direct support for job creation are likely to be disappointed, as the continued emphasis on capex relies on both more modest revenue expenditure trends and a pick-up in fiscal receipts,” said Priyanka Kishore, Head, India and South East Asia Economics at Oxford Economics. The projected shares of both education and health in overall expenditure remain below pre-pandemic levels for the third consecutive year and hopes of an urban employment scheme similar to the MNREGA have not materialised, she said.

The share of capital expenditure is projected to rise to 2.9 per cent of GDP in FY23, even as the share of overall spending is forecast to fall to 15.3 per cent of GDP from 16 per cent.

For the social sector, the government has made an allocation of Rs 60,000 crore with an aim to cover 3.8 crore households under the Har Ghar, Nal se Jal scheme in 2022-23.

Among major schemes, Rs 19,000 crore has been allocated to the Pradhan Mantri Gram Sadak Yojana during the upcoming fiscal (compared to Rs 14,000 crore in RE 2021-22), Rs 39,553 crore to the National Education Mission (against Rs 30,796 crore in RE 2021-22), and Rs 37,800 crore to the National Health Mission (against Rs 34,947 crore in RE 2021-22).

As for the major production linked incentive schemes, Rs 5,300 crore has been allocated for large scale electronics and IT hardware sector for 2022-23, Rs 529 crore for telecom and networking products and Rs 1,629 crore for pharmaceuticals.