Union Budget: NHAI to keep off bond market in 2022-23

Recognising the huge debt burden of NHAI at Rs 3.38 trillion, the finance ministry has given it nil space to borrow any more in the FY23 Budget

Recognising the huge debt burden of the National Highways Authority of India (NHAI) at Rs 3.38 trillion, the finance ministry has given it nil space to borrow any more in the FY23 Budget. Instead to finance the humongous plan of roadways expansion the government has decided to take on the responsibility itself.

This has significance for the bond markets, too. They will have to reckon with the absence of NHAI in the next financial year. The move opens up an equivalent space for the Centre to finance its own borrowing.

This is also a crucial financial manoeuvre the government shall undertake to build the 25,000 km more of national highways in FY23, as well as complete the backlog of road projects in the country. Building of roads has emerged as one of the largest pieces of physical infrastructure creation for the government to spur investments in the economy.

So, while NHAI will not borrow a rupee more in FY23, it shall get a Rs 68,955 crore of support from the finance ministry. The method is quite similar to the gross budgetary support the finance ministry would offer to the cash-strapped Railways every year.

The Expenditure Budget shows how this will happen. NHAI had raised Rs 65,000 crore through various maturities of bonds from the market in FY22. The road building organisation had borrowed a similar amount of Rs 65,000 crore in FY21 too. But this time as the Budget papers show it has not been allowed any borrowing space in FY23.

This bit of financial engineering is the reason why the budget for the ministry of road transport and highways has shot up in a budget where it has stayed flat for all other ministries. The money inflow from the dedicated funds like the Central Road Infrastructure Fund, Permanent Bridges Fee Fund and Monetization of National Highways Fund shall continue at the same pace as last year, unchanged.

Among all government owned or parastatal bodies, NHAI has the largest debt overhang. The success of the NHAI is crucial to India’s projected Rs 111 trillion of infrastructure asset generation under the National Infrastructure Pipeline till FY25. NHAI has often bid out its projects under what is known as the hybrid annuity model that offers a secure cash flow to banks from them. It makes them keen to line up for NHAI bonds.

Why does NHAI raise bonds? The organisation builds roads through this money and then those are put out for monetisation by bidding them out for tolling by investors under various models like Infrastructure Investment Trust (InvIT) or Toll Operate Transfer (TOT). Till FY25, the centre hopes to generate Rs 1.6 trillion by monetising 26,700 km of national highways of four lane and above.