The path for India to become a $5 trillion economy in the next
5 years goes through infrastructure development, writes S.K. Khanna


Infra Development - The Way Forward

Although the Indian economy has been facing macro-economic ups and down due to global economic gloom, it has managed to remain stable, recording moderate growth rate consistently. Braving all the problems beyond its control, it has improved its global economic ranking, and notching up to 6th position from 11th in 2018. With these credentials, India is aspiring to become a $5 trillion economy in the next 5 years. The maiden Budget of the new Finance Minister presented on July 5, contains an elaboration on the vision for making India a five-trillion dollar economy by 2023-24 through a fresh thrust on infrastructure development, digital economy, private investment, fiscal discipline, structural reforms, provision of credit growth / financing by the capital market, commitment to improve financial system which can promote private sector investment cycle, and contain imprudent borrowing.

The government also plans to construct 19.5 million houses, ensuring electricity to rural households, providing clean drinking water to all households by 2024, and offering pension benefit to over 30 million small traders and shopkeepers. Some of these measures such as construction of houses, roads and highways, state-of-the art bridges, railways, renewable, ports, airports, metros etc, already undertaken through government spending, are showing positive results. Capacity creation and expansion in important segments like roads and highways, power, railways, renewable sector, ports, airports, metros etc, are delivering impressive results.

The current buoyancy has not just confined to urban areas but also extended to rural areas and improving the quality of life for the masses. Over the period, formalization of the economy has taken place and any growth now and onwards will be more sustainable, rather than a boom-and bust process, opined the Niti Ayyog chairman at a recent seminar.

Private sector participation
Private sector participation and its investment on national projects during the past 3-4 years has been comparatively subdued and has failed to give tangible results. Investments declined sharply from 37- 38% to below 25% during FY 2017-18. As per a Crisil report, the renewable sector which has seen brisk investments, is facing headwind today. Its investment in thermal generation is already in deep trouble with stranded capacities, stressed loans, and weak demand. New investment activities in ports, airports and power transmission have remained tepid. In railways and urban infrastructure, private investments are negligible. In the road sector, some of the companies squandered their capital as the project estimates were too optimistic. They borrowed heavily to finance extravagant expansion plans and soon became cash-strapped, while others became too cautious to invest in projects, which worsened the investment crisis.

The long spell of lack of investment by the private sector has been attributed as one of the reasons for the current industrial slowdown, leading to the current lack of job opportunities and distortion in demand / supply situation, and neutralizing the government’s efforts to resurrect the situation by engaging in its development agenda.

The government’s increased spending has failed to motivate the private sector, but revival of the investment cycle should not be linked with government spending. Some of the private companies in the sector need to revise their business models in tune with the emerging economic realities and need for infra development. A serious introspection is called for and a convergence of approach, including handholding, is the need of the hour to induce infrastructure activities.

Infra Development - The Way Forward

Infra sector – the growth booster
Infrastructure development is the key to economic growth and well-being of the country’s people, as it will propel economic growth, improve quality of life, contribute to GDP nationally, and improve the Development Index globally. Therefore, massive infrastructure development is a sure way of achieving the government’s $5 trillion economy target. The country is currently an epic centre of new generation infrastructures smart cities, smart highways, airports etc., for which the government has an ambitious plan of spending over 100 lakh crores over the next five years. This is will give a boost to several sectors, create new jobs directly and indirectly, and eventually boost the commercial market, thereby propelling the country’s economic growth.

Most economists and even multilateral agencies expect the current slowdown to ebb as the impact of various measures unveiled recently begin to take hold. Speaking on the subject at a meeting, the former RBI Governor Bimal Jalan said that the current slowdown in the Indian economy is cyclical and growth will pick up in one or two years with the government’s plans and strategies for economic recovery.

Bridging Infra deficit & reforms in financing ecosystem
According to the Global Infrastructure Outlook report, although there has been tangible progress in bridging the infra deficit, India is underperforming in infra spending in relation to its GDP, in several infra segments, with its peer group that comprises Bangladesh, Cambodia, Indonesia, Mynamar, Philippines, and even Pakistain, India would need investments to the tune of $4-5 billion till 2040 to accelerate its economic growth and make it the second largest infrastructure market in Asia, after China. Since the government alone cannot do this, its infrastructure burden has to be eased.

According to Dr. Visvesvaraya the burden of infra spending can be eased and infrastructure financing ecosystem deepened and diversified through innovative financing options. We have to shift our reliance on banks and financial institutions and create a strong and robust bond market, particularly, issue rupee dominated bonds to establish the rupee as an internationally accepted currency. Ways and means for long-term capital-intensive projects are to be explored for a stable investment regime for the infra projects. In view of emerging uncertain global economic developments, we should avoid external sovereign borrowing by raising a $10biilion overseas bond, as proposed in the Budget.

PPP Projects
PPP projects need to be encouraged through innovative business models like those available in the highway sector. Simultaneously, a list of strategic bankable PPPs requiring specialized inputs be kept ready always to motivate private sector participation. “The recent example of asset monetization of road projects is a welcome development attracting private sector investment,” said Vipin Sondhi, MD & CEO of JCB India, during an interaction with the author. He added that payments to contractors who have completed their projects should be made promptly.

Conclusion
There is a whiff of fresh air on a number of fronts: the service sector is performing well, the RBI is cutting key interest rates to boost corporate investment and encouraging consumer spending to accelerate economic growth; an important decision has been made to monetize public sector assets and garner ₹3 lakh crore to fund greenfield projects; and, lastly, Australian and Canadian pension fund pledging $2 billion to the National Investment and Infrastructure Fund demonstrates international interest in India’s infra development program. The burgeoning infrastructure market presents many gainful business opportunities to overseas players who can help scale up strategic projects awaiting investment.

Broad-based private and public sector investment for infra development requires holistic efforts by all the stakeholders. The coming years will see the infrastructure sector establishing new benchmarks in project management, timely execution, implementation and completion of projects, and quality inputs within the time and cost targets. Translating the government’s vision to become a USD 5 trillion economy by 2023-24 may be a formidable task, but is achievable, nevertheless.
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