Will Infrastructure Boost be the theme of Budget 21?

There are a number of reasons why Budget 2021 could have a specific focus on infrastructure development.

January 20, 2021 10:56 IST | India Infoline News Service
Aggressive infrastructure investment was first raised by the Rakesh Mohan Committee in 1997. It had then estimated a 10-year investment outlay of $200 billion, a princely sum in those days, for Indian infrastructure to reach Southeast Asian levels. That kind of focus never happened due to reasons like land acquisition, environmental issues, cost overruns.

In 2018 when the infrastructure investments estimates were revised to $2 trillion over 10 years, it still remains a princely sum. The only difference is that the Indian economy has grown to become a $2.7 trillion economy; at par with France and the UK. Obviously, the issue of infrastructure investing becomes a lot more critical since empirical studies have projected infrastructure investments boost GDP growth at 2.0-2.5% annually.

Budget 2021 could have an overt focus on infrastructure

There are a number of reasons why Budget 2021 could have a specific focus on infrastructure development.
  • COVID-19 is estimated to have caused economic loss of Rs18 trillion. That is roughly 9% of GDP. This type of loss cannot be recovered through revenues. The only option is to give a push to infrastructure and let the externalities play out.
  • Year 2021 and 2022 will see private investments hard to come by. The government and the public sector will have to take the initiative. The first signal has come with large PSUs like Coal India, ONGC and HPCL front-ending their capital investment plans.
  • The GDP is expected to contract (-7.7%) in 2021 and any bounce in 2022 will largely predicate on a sharp focus on infrastructure spending. After all, infrastructure still has the highest multiplier effect on the economy.
  • Infrastructure projects like roads, highways, railways and factory infrastructure are also extremely job intensive. That is essential considering that millions of jobs have been lost in the pandemic and infrastructure would hit two birds with one stone.
  • If the economic revival has to be fast-tracked, India needs aggressive investments made in roads, railways, ports, airports, waterways, urban infrastructure, industrial parks and dedicated freight corridors.
  • To sum up, the big push to infrastructure by the government will be instrumental in private sector orders, job creation and more disposable incomes; powering the consumption cycle in the economy.
What is the infrastructure push that Budget 2021 could look at?

In FY21, the government has only exhausted 40% of its capital expenditure budget till Dec-20. This is lower than 55% in the comparable period last year. That calls for a quantum push to infrastructure spending in Budget-21. Here is how.
  • The Confederation of Indian Industry (CII) suggests that to begin with, the government can notify the shelf-ready projects that are in the National Infrastructure Pipeline (NIP), for implementation. Since there are not enough planned infrastructure projects ready for bidding, the government can either front-end projects or fund the states.
  • India is just coming out of a major pandemic and the inoculation process would have just about started by the time of the budget. Health infrastructure focus  is called for. Hospitals can be given infrastructure status, government can encourage better reach and invest in primary health centres to make last mile delivery feasible. In these complex projects; private-public-state partnerships can work wonders.
  • The third major area is post-harvest agricultural infrastructure. The government has taken the first step with the 3 Farm Bills to ensure competitive market prices to farmers. But that still leaves a major gap; and that is post-harvest infrastructure. These include high quality warehouses to reduce wastage, proper transport infrastructure, cold storage and movement etc. This can arrest supply chain bottlenecks in agri-output.
Funding the National Infrastructure Pipeline (NIP)

If Atmanirbhar Bharat has to be successful, India needs to compete with China, Vietnam, Taiwan and Korea. These countries have phenomenal physical infrastructure. The first focus should be the National Infrastructure Pipeline (NIP). The NIP has overall projects worth Rs111 trillion of which projects worth Rs44 trillion are already under implementation. The full amount has to be spent by March 2025.

The NIP entails 39% investments by the centre, 40% by states and 21% by private sector. The real challenge is timely completion of projects without time and cost overruns. The government can announce single window clearance, faster resolution of issues like land acquisition and environmental clearance and incentives for timely completion of projects without cost overruns. This is how NIP spending will be broken up.

Under the NIP, Rs25 trillion has been allocated for energy sector, Rs20 trillion for highways, Rs16 trillion for agriculture/irrigation, Rs16 trillion each for Railways & mobility and Rs14 trillion for digital infrastructure.

The production linked incentive (PLI) scheme worth $20 billion will also be a boost and the government needs to build on that in Budget-21. Financial outlays will be a challenge but there is enough interest in Indian infrastructure and if the plan is right, there will be no dearth of sovereign funds and pension funds queuing up. The challenge in Budget 2021 will be to get its infrastructure plan in place.

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