Indian government has unveiled its plans to invest Rs 102 lakh crore in the next five years to give the country a much needed infrastructure push. Though the move is in line with its goal to make India a USD 5 trillion economy, it looks too ambitious and also laden with challenges.
The plan was first announced by the Prime Minister Narendra Modi during his Independence Day speech this year from the ramparts of the Red Fort.
The government has identified 12 sectors where the money will likely be spent on National Infrastructure Pipeline (NIP) projects during the next five years.The top beneficiary will be the energy sector where an estimated Rs 25 lakh crore will likely be spent –Rs1,175,995 lakh crore on power, Rs 929,500 on renewable energy, Rs 154,088 on atomic energy, and Rs 194,666 on petroleum &natural gas.
Roads, urban infrastructure comprising of AMRUT, SMART cities, affordable housing and jaljeevan mission and railways are other sectors that could likely see heavy investments. Around 50 lakh crore is likely to be spent on the three sectors, according to the government figures.
The other sector are ports, airports, telecommunications, irrigation, rural infrastructure, agriculture & food processing and social infrastructure.
Under the social infrastructure head, the government will be spending over three lakh crore.
The aviation sector has also been a growth area for the country over the last decade and it could see investments up to Rs 2.5 lakh crore. Digital India too,gets a massive boost with Rs 3.2 lakh crore likely to be invested in building digital infra projects across the country.
The finance minister Nirmala Sitharaman said that the funds would come from Center, states and private sector. The Minister claims that the government spending on building infrastructure projects since 2014, when the Modi government first assumed office is in access of Rs 51 lakh crore.
Many of the projects that are expected to be completed by 2025 are under various stages of implementation. It has been reported in sections of media that projects worth Rs 43 lakh crore are underway while those worth Rs 32.7-lakh crore (32%) are in the conceptualisation stage, and the rest are under development.
According to a media report the government spent around Rs 10 lakh crore in financial years 2017-18 (April-march) and 2018-19 while it would spend over Rs 13 lakh crore by the end of 2019-20. But going forward, the task looks like an arduous one with investment requirements of Rs 20 lakh crore for the next five years.
It is nobody’s guess that the government would require funds from multiple sources.
The challenges for the government are manifolds. It could not allow the fiscal deficit situation to go out of hand, though there are voices that have suggested that the government should increase spending to revive growth and consumption. That would not only get it revenues but also give some fillip to industrial and service sectors, they reason. The bank credit has also been squeezing amid rising bad loans and tight liquidity situations for private sector banks.
Unfortunately for India, the fiscal deficit has touched 114.8% of the budgeted target for full year during the first eight months of this fiscal year.
The balance sheets of many infrastructure companies are also in the red.
The government has said that 22 of the investment will come from the private sector, which has not shown enough appetite for investment or expansion despite a corporate tax cut relief. The estimated loss of revenues is around Rs 145,000 crore for the exchequer.
The governments over the years have depended upon public sector banks while pushing for the infrastructure development which lead to a banking crisis, eventually leading to credit squeeze. The banking system is now laden with bad debts.
Attempts to monetise assets have not yielded much as the government will fall significantly short of the target of Rs 1.05 trillion for the FY20. But even with this only a small part of the requirement could be met.
Avenues to explore
India’s pool of long term savings is also not enough to support investments of this proportion.The government will have to incentivise people to undertake long-term savings through tax breaks or other reform measures, only then can it push people towards keeping the money in banks and government schemes.
The country will also have to widen the ambit of its bond market and not just rely on tradition sources of funding.
It will also have to take states into confidence as they are equal stakeholders (39%) in the scheme of things. The states are already under tremendous pressure because of the looming slowdown. Many states are cutting down their capital expenditure focusing on revenue expenditure.
The government has said that the private sector investments would be ramped-up from existing 22% to 30 percent by 2025.
The government has also indicated that it will be dropping projects that become laggards, to effectively manage the financial resources. This flexibility augurs well for its plans to undertake such a massive development exercise.The government constituted a task force to draw up the pipeline for each of the years. The task force in its recommendations has suggested various policy changes on sector-wise basis.
More importantly, the country will have to shore-up its goods and services tax (GST) collections which have been sliding over many months now barring December when it again crossed the Rs 1 trillion mark. There will be a significant shortfall in GST collections in the financial year ending March 31, 2020, which is not a good news.
But above all, it has to bring back the economy on its foot. Unless the economy revives and revenue collection picks up really well, the promised government contribution to meet the infrastructure target will not materialise.
Like the previous two quarters – June and September – the December quarter is also likely to be bad. The previous two quarters saw a 5% and 4.5% GDP growth and it is being said that this quarter’s growth will also be a sub-five percent growth.