Infrastructure development has been a major focus of the incumbent government. This sentiment was reflected in the Budget speech by Finance Minister Nirmala Sitharaman in July 2019 when she announced investment worth Rs 100 lakh-crore for the sector for five years.
This investment plan is called the National Infrastructure Pipeline (NIP). The figure, later revised to Rs 102 lakh-crore, is likely to increase as more projects are identified. Nearly 39 per cent of the total capital expenditure will be shared by the Centre and states each, and the remaining 22 per cent will come from the private sector.
This infrastructure pipeline is critical to achieving the target of $5 trillion economy by 2025. According to a report published by the Task Force on the NIP, about 78 per cent of the capital investment will be on sectors such as roads, urban housing, railway, power (renewable and conventional), airports, ports and industrial corridors. The report claims that 42 per cent of the projects are at the implementation stage. During FY08-19, Rs 80 lakh-crore went into the infrastructure sector.
A comparative analysis of the sector-wise share of investment in infrastructure projects for FY08-19 and FY20-25 suggests that power or energy commands a lion’s share. There has also been a 3 per cent rise in investments in railway and urban projects from the previous decade while the share of roads, airports and ports almost remains the same.
In the case of public sector enterprises, the government needs to identify additional resources so that it can reduce its budget deficit. Disinvestment and privatisation strategies could help in garnering resources and increasing their efficiency.
For instance, the Indian Railways could get the private sector on board to provide resources for speedy implementation of projects, modernisation of stations, providing world-class amenities to passengers, rolling stock manufacturing, delivery of freight services and the like. With the flagging off of the Tejas Express between Lucknow and Delhi, the Railways has announced its plans to privatise operations of 150 passenger trains.
Challenges on this front include availability and ownership of common resources accessed by private train operators, and tracking and signalling. Hence, the role of the public sector should be thoroughly analysed. The two railway stations, Habibganj and Gandhinagar, which are being redeveloped on a PPP (public private partnership) basis, are expected to be completed by this year. Reports suggest that more stations will be developed on this line.
The Western Dedicated Freight Corridor (WDFC), part of the Dedicated Freight Corridors (DFC) Project approved in 2006, is slated to be completed by March. The construction of the Eastern Dedicated Freight Corridor (EDFC) is also on fast track. Once this project is operational, it will increase the share of freight movement through rail compared to that of road, thus giving a significant boost to the economy. It will also result in decongesting over-saturated rail routes, thus improving the punctuality rate of passenger trains. With the completion of other planned freight corridors, the national transporter is sure to improve its operations and efficiency.
When it comes to road transport, Vision 2025 aims to increase the total length of National Highways to 1.99 lakh km, from the current 1.32 lakh km. The rate of highway construction in India increased to 30 km in FY18, from 27 km per day in FY17.
However, according to a Care Ratings report, the construction rate went down to about 27km per day in FY19. The key factors for this slump could be the rising cost of land acquisition and the reluctance of public sector banks to lend to infrastructure developers, adding to the issues of funds mobilisation.
The Budget 2019 had promised central support to develop state road networks in the second phase of the Bharatmala scheme. A road map for the same is expected in this Budget. In that case, private sector participation, currently about 15 per cent, will get a leg-up, which could contribute through a higher penetration of advanced technology by way of automated traffic controllers, speed regulators, increased use of FASTags to ensure safety, security and reduction in congestion on roads.
There are some common challenges in implementing ambitious initiatives resulting in inability to meet timelines and operational efficiencies. These include procedural and departmental wrangling, budgetary restrictions, land acquisition, environmental clearances, funds mobilisation and so on. Measures need to be taken to address these issues.
Falling private sector investment demands new strategies to encourage private players to finance infrastructure projects. Issuing tax-free infrastructure bonds, robust policy frameworks, relaxing norms for private parties to participate in funding and implementation, providing single-window clearance and dispute mechanisms for projects are some of the measures that are likely to produce desired results.
Another welcome step in infrastructure investment would be the new Bill on easing FDI norms that the government is likely to introduce this Budget session, where ‘most favoured nations’ will get more tax benefits and regulatory relaxations.
This article was published in Money Control on January 30, 2020 click to read
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.