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Budget 2022: ICRA pins hope for increased budgetary support for ports, shipping, and logistics sector

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With the union government set to present the budget 2022-23 on Feb 1, 2022, the domestic rating agency ICRA on Monday shared its pre-budget expectations on ports, shipping, and logistics sector.

The rating agency expects the government to increase budgetary support for flagship projects including Sagarmala and inland waterways, providing a boost to the execution pace and investments.

Furthermore, enhancing the connectivity across India and speedy implementation of projects such as Bharatmala for the road logistics sector, dedicated freight corridor (DFC) for the railways, and Sagarmala for the waterways will be of prime focus to the center in the coming budget, ICRA believes.

There has been traction in policy initiatives for the ports sector in the current fiscal with the operationalization of the Indian Major Ports Act, 2021 and notification of market-based tariffs under the Act, notification of the revised Model Concession Agreement for PPP projects, and passage of the Inland Vessel Act, 2021 in both houses of Parliament, ICRA said.

While the slew of measures has been favorable for the sector and is expected to aid in attracting private sector investments, increased budgetary support from the center for such flagship projects will indefinitely boost the execution pace and investments, it stated.

The budgetary allocation of the past for the flagship projects has indicated reliance on private sector participation. The allocations have remained low (about Rs 500-600 crore) compared to the cost of planned initiatives under these schemes.

ICRA notes that even if the government decides on continuing the trend of low budgetary allocation, one can expect some incentives or other measures to boost private investor interest that facilitate more active participation.
Further, any budgetary support for the modernization of shipyards (public as well as private) or other incentives which will help in meeting the government objective of greater indigenization of naval contracts will boost manufacturing under the ‘Make-in-India program’, as per the note.

The rating agency has also tied its hope with the government to give some relief on taxes on diesel, while also looking for a push for higher absorption of EVs (electric vehicles) particularly for last-mile connectivity through subsidy /incentives.

It highlights the need to finalize and implement the National Logistics Policy for the continued push for reforms in the sector to reduce inefficiencies and improve global competitiveness for the logistics sector.

ICRA also said that the logistics sector requires continued to push for higher digitization and automation to lower compliance costs through policy support besides pushing towards the creation of a skilled workforce for the sector as well as reforms towards the upliftment of livelihood of the workforce.

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