The national infrastructure pipeline coordination mechanism announced by Union finance minister, Nirmala Sitharaman on Tuesday, with an investment pipeline of Rs 102 lakh crore over next five years, is high on ambition. But, in real world, this would look more like a laundry list. Here’s what has happened so far. The Narendra Modi government is determined to get to the $5 trillion economy size by the year 2024, no matter even if the critics constantly remind it of the poor state of growth engines. Rather than admitting the problem, the government would rather term the critics as ‘professional pessimists’.
The much-hyped $5 trillion economy will come, no matter who says what. There is always a silence on the big question on who will fund the growth. Cut to the infrastructure part, for those asking for a roadmap to the $5 trillion economy, the government has come with an answer—massive investments in infrastructure projects as a key measure to achieve the target.
Over a Rs 100 lakh crore will be pumped into the infrastructure department and it will help achieve the $5 trillion dream, the government claims. Indeed, the plan is quite ambitious and a tonic for those lamenting about the poor state of the country’s under-developed infrastructure division. Back to the question—where will the money come from? The government probably anticipated the question and was ready with a plan.
According to the plan announced by Finance Minister Nirmala Sitharaman, of the total investments, 39 percent each will come from the Central and state governments while the remaining 22 percent from the private sector. So far so good. But does this plan work? India has been spending an average Rs 8 lakh crore annually since FY13 on infrastructure, according to official data.
To reach the target of Rs 100 lakh crore investments in, say, five years, the total investments need to be around Rs 20 lakh crore a year. How will this huge deficit be filled?
Sitharaman’s formula of public-private contribution needs some serious examination. Since the fiscal year 2013, the state governments have been the biggest contributors with average annual spending of Rs 3.3 lakh crore while the Centre has been contributing only about Rs 2.38 lakh crore.
Now, we are talking about Rs 20 lakh crore a year. This means states will have to contribute more money, possibly over 40 percent to the total to meet the target. Unless there is a significant revenue jump in the next few years enabling the government to reserve money for that kind of spending, this will be mere wishful thinking. The Goods and Services Tax (GST) revenues have fallen way below the target so far and several state governments are up in arms against the Centre for not delivering the promised compensation on revenue loss on account of the GST implementation.
Blame their weak financial position, many state governments are cutting down their capital expenditure already. The Centre itself is walking on a thin line on fiscal deficit commitment. The fiscal deficit, in the first eight months of this fiscal year, has touched 114.8 percent of the budgeted target for full year. Unless the economy revives and revenue collection picks up really well, the promised government contribution to meet the infrastructure target will remain on paper to a large extent.
The second major challenge will be to get the private sector on board. In a slowing economy, private investors have largely been on the sidelines. Their participation has been poor so far. Since FY2013, the private sector has contributed only an average Rs 2.3 lakh crore a year to India’s infrastructure spending. This is despite giving a clarion call to investors by Modi to participate in India’s growth story over the last five years.
Unless the economy picks up in a big way adding revenues to the state coffers and private sector participation jumps sharply, the question on who is going to fund India’s big infrastructure dream remains unanswered. The private sector confidence has taken a beating on account of the policy flip-flops, the government’s reluctance to get out of businesses and lack of policy focus on the economy, especially on land and labour reforms. Logically, the government will have to convince the private sector to participate in the Rs 102 lakh crore story.
Dreaming big is essential but the implementation part is always tricky. To achieve India’s infra boom, the country will have to deepen its bond markets and not rely on its weak banking sector and crisis-ridden shadow banks that are badly in need of an asset quality review.
“The big infrastructure deficit, India has, is also an opportunity for the bond market to take the lead in long-term lending,” said a senior economist with a private organisation. The problem is that the government is not interested in looking at the details of implementation part but is content with a good, long laundry list.
To meet the Rs 102 lakh crore infrastructure mega spending target, India will have to more than double its annual infra spending. This looks impossible without the private sector coming on board in a big way.
(Data support by Kishor Kadam)
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Updated Date: Jan 01, 2020 15:20:40 IST