Articles
Fiscal Devolution Essential to Strengthen Local Governments
June 27, 2019
Governance challenges for Modi 2.0
June 27, 2019Immediate challenges for Modi 2.0 in infrastructure sector
The market expects that the Union Budget will revive the tax-free infrastructure bonds schemes. Given the status of the economy, it is important that the financing options other than from the government should be encouraged.
The Bharatiya Janata Party’s election manifesto, Sankalp Patra, promised to make an investment of Rs 100 lakh-crore in the infrastructure sector in the next five years. It indicates to encourage private partnership in the development of railway amenities, infrastructure and provision of services. It also aims to create an infrastructure, which includes gas grids, water grids, regional airports, i-ways and wayside amenities along the National Highways (NHs). It has also promised to construct 60,000 km of NHs and expand the connectivity of high-speed trains. It also targets to double the number of functional airports in the country by 2024. The renewable energy sector would be another major area of focus.
The period between 2014 and 2018 has seen a considerable growth in the infrastructure sector. Significant progress has been made in the Sagarmala programme launched in 2015 by the ministry of shipping to promote port-led development, which has identified more than 604 projects valued at about Rs 8.8 lakh-crore, but demand a speedier implementation.
The first proposed high-speed elevated rail link connecting Mumbai and Ahmedabad is making slow progress. Until December, of the proposed 1,400 hectares, only one hectare has been acquired for the project. Though the project for constructing a dedicated freight corridor was initiated in 2006, it gained momentum only during Prime Minister Narendra Modi’s first term. A notable progress has also been observed in the aviation sector with the number of operational airports in India rising from 75 to 102 between 2014 and 2018 through the UDAN-RCS scheme.
The construction target set by the ministry of road transport and highways has increased from 40 km/day in 2016–18 to 45 km/day in 2019, whereas the actual target achieved was 22 km/day (2016–17), 27 km/day (2017–18) and 23 km/day (2018–July 2019).
The percentage of completed road length under the Pradhan Mantri Gram Sadak Yojana (PMGSY) has seen a gradual decrease against the target length from 97 per cent (2016–17), 96 per cent (2017–18) to 85 per cent (2018–19). The allocation to the scheme was enhanced in 2016–17, but was kept unchanged in the following years. Bringing forward the completion date from 2022 to 2019, but without an enhanced budget allocation and an implementation plan, its success needs to be seen.
There has been an increase of over 50 per cent and 20 per cent in the budget allocated for Smart Cities Mission and AMRUT, respectively, from 2017–18 to 2018–19. The smart cities mission has seen an overspending in budget estimates by 73 per cent (2015–16), 137 per cent (2016–17) and 100 per cent (2017–18). The highest allocation was to the metro rail projects, with Rs 15,000 crore budgeted for 2018–19. The Standing Committee on Urban Development (2017) has pointed out that a high capital expenditure by the ministry on metro rail projects (91 per cent of total) will lead to inadequate funds for other projects.
The challenges associated with budgetary restrictions and fund mobilisation are common concerns in achieving the targets in almost all the sectors. An MoU was signed by LIC to invest in Indian Railways through bonds, but only 11 per cent of the promised fund is provided due to exposure limit constraints as per the IRDA guidelines.
Lack of coordination between the implementing agencies and land acquisition are other issues which have led to the projects getting delayed. In the case of Public Private Partnership (PPP) projects, private sectors have experienced that the operating risks have been completely transferred to them, which have led to roadblocks in the completion of the projects. Therefore, risk allocation between the private and public sector needs to be revised to ensure unobstructed implementation of the projects.
The Hybrid Annuity Model introduced in 2016 has mixed effects as banks are reluctant to funding such projects because they ended up being non-performing loans, where the borrowers are unable to make enough revenue. Irrational estimation of project cost by private bidders without proper evaluation of other project variables has led to projects getting stuck at the operational stage. The high speed rail network still remains a grey area as the financial viability of the project is still a concern.
The government should emphasise on achieving the targets set in its previous regime by identifying and acting upon the roadblocks which were responsible for the delay. Encouraging private partnership in the infrastructure sector needs to be explored, which can expedite the completion of projects by building well-designed PPP models.
The focus should be on a sustainable future by investing more in public transport, electric vehicles and charging infrastructure. Investments and consistent policies in renewable energy sector should be another priority. At present, India generates only 73 GW energy from renewable sources as against an ambitious target of 175 GW by 2022, set by the previous Modi government.
The market expects that the Union Budget will revive the tax-free infrastructure bonds schemes. Given the status of the economy, it is important that the financing options other than from the government should be encouraged and a robust policy framework should be declared. As promised in Sankalp Patra, the single-window compliance and dispute resolution mechanism for MSME, if extended to other sectors, shall further attract private investors.
This article was published in Money Control click to read
Views expressed by the authors are personal and need not reflect or represent the views of Centre for Public Policy Research.
Praseeda Mukundan is a Senior Research Associate at CPPR. She is an Architect, and Urban and Regional Planner from the School of Planning and Architecture, Bhopal. She can be contacted by email at [email protected]
