As India embarks on its journey of 5 trillion Economy, the importance of Infrastructure cannot be undermined. PM Modi in his Independence Day speech 2019 had highlighted this aspect by allocating ₹100 lakh crore for infrastructure projects over the next 5 years.
The latest move- ‘National Infrastructure Pipeline (NIP)’. NIP will help to augment infrastructure and create jobs in the country. The government task force on NIP in its report has projected total investment of Rs 111 lakh crore in infra projects over 5 years.
The emphasis would be on ease of living: safe drinking water, access to clean and affordable energy, healthcare for all, modern railway stations, airports, bus terminals and world-class educational institutes.
What is the National Infrastructure Pipeline (NIP)?
- NIP includes economic and social infrastructure projects.
- During the fiscal years, 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) will amount to around 70% of the projected capital expenditure in infrastructure in India.
- It has outlined plans to invest more than ₹102 lakh crore on infrastructure projects by 2024-25, with the Centre, States and the private sector to share the capital expenditure in a 39:39:22 formula.
Why the infra sector is given more emphasis these days?
- Slowdown due to the pandemic is a good time to catch up on infrastructure capacity and increase the expenditure.
- Infrastructure spending is a critical component of the fiscal stimulus as it has multiplier effects on the economy and job creation.
- Quality infrastructure is important not only for faster economic growth but also to ensure inclusive growth.
- Lack of adequate infrastructure not only holds a lack of economic development, but it also causes additional costs in terms of time, effort and money of the people for accessing essential social services.
Key benefits of NIP
- Economic: Well-planned NIP will enable more infra projects, grow businesses, create jobs, improve ease of living, and provide equitable access to infrastructure for all, making growth more inclusive.
- Government: Well-developed infrastructure enhances the level of economic activity, creates additional fiscal space by improving the revenue base of the government, and ensures the quality of expenditure focused on productive areas.
- Developers: Provides a better view of project supply, provides time to be better prepared for project bidding, reduces aggressive bids/ failure in project delivery, ensures enhanced access to sources of finance as a result of increased investor confidence.
- Banks/financial institutions (F1s)/investors: Builds investor confidence as identified projects are likely to be better prepared, exposures less likely to suffer stress given active project monitoring, thereby less likelihood of NPAs.
- The report contains recommendations on general and sector reforms relating to key infrastructure sectors for implementation by the Centre and states.
- Sectors such as energy (24%), roads (18%), urban (17%) and railways (12%) amount to around 71% of the projected investments.
- The projects will also be spread across sectors such as irrigation, mobility, education, health, water and the digital sector.
Major constraints in implementation
The major implementation constraints that will be faced possibly in future are:
- Availability of funds for financing large projects
- Lengthy processes in land acquisition and payment of compensation
- Environmental concerns
- Time and cost overruns due to delays in project implementation and procedural
- Delays and lesser traffic growth than expected to increase the riskiness of the projects
- Stalled or languishing projects and a shortfall in funds for maintenance
Highlights of the task forces’ report
Components of Infrastructure Vision 2025
The Taskforce has proposed certain goals, strategies and standards under its Infrastructure Vision 2025. Following are the components of the vision.
(a) Affordable and clean energy
- Ensuring 24×7 power availability;
- Reduce pollution through green and clean renewable energy and environment-friendly fuel for transportation.
(b) Digital Services
- Providing access for all.
- 100% population coverage for telecom and high-quality broadband services for socio-economic empowerment of every citizen;
- Digital payments and e-governance Infrastructure for delivery of banking and public services
(c) Quality Education:
- World-class educational institutes for teaching and research, technology-driven learning meeting GER target of 35 by 2025 as per the draft National Education Policy, 2019.
(d) Convenient and efficient transportation and logistics
- Roads: Enhanced road connectivity to remotest areas and trunk connectivity through expressways, major economic corridors, strategic areas and tourist destinations. Extensive charging and on-road traction infrastructure for electric vehicles.
- Rail: World-class stations and fully integrated rail network with inter-modal connectivity to remote regions and close to nil accidents.
- Air: Airport and related infrastructure to enable international and regional connectivity so as to achieve passenger and cargo traffic on the vision of NCAP 2016. Air connectivity to all Tier II and most Tier III cities.
- Ports: Port and Waterway infrastructure focused on reducing logistics time and cost for foreign and domestic trade as per the Sagarmala National Perspective Plan 2016.
- Metro-connectivity: Urban mobility MRTS and bus connectivity within 800 metres of homes in more than 50 cities. High standards of living for citizens by providing metro connectivity in at least 25 cities.
(e) Housing and water supply for all
- Housing for all by 2022 PMAY negligible slum population.
- All households to have piped water meeting national standards by 2024.
- Wastewater recycling and treatment.
(f) Agriculture infrastructure:
- Increased irrigation and micro-irrigation coverage;
- Integrated agro logistics systems from farm gate to end consumers storage, processing and packing, transportation, market and digital infrastructure for agriculture produce.
(g) Good health and well being
- Superior healthcare facilities, electronic health records infrastructure.
- Superior accessible primary, secondary and tertiary healthcare infrastructure facilities across India to meet NHP 2017 goals.
- Medical para medical education infrastructure meeting manpower needs by 2020 and CHVs by 2025 as per IPHS norms.
Major area of focus
- According to the report, India would need to spend $4.51 trillion on infrastructure by 2030 to become a $5 trillion economy by 2025.
- Of the Rs 111 lakh crore, the plan suggests spending 24 per cent in the energy sector, 18 per cent in roads, 17 per cent in urban infrastructure, 12 per cent in railways, and the rest on airports, agriculture and food processing infrastructure, industrial infrastructure, among others.
- Healthcare, clubbed with the social sector, ranks alongside ports and airports.
- The biggest allocations go to power, roads, railways, irrigation, urban and rural infrastructure.
- The report allocated Rs 3.93 lakh crore to social infrastructure, including higher and school education, health and family welfare, sports and tourism. That’s higher than Rs 3.56 lakh crore proposed in the interim report.
Here are other highlights of the report:
- The report suggests forming a steering committee in the Department of Economic Affairs for raising financial resources for infrastructure projects
- It recommends setting up a well-capitalized credit enhancement fund to improve the rating of projects to easy investments by institutional investors in infrastructure through capital market instruments
- Channeling resources from the pension and insurance sector into the infrastructure bond market
- Strengthening the municipal bond market in India
- Developing infrastructure financing institution IIFCL as a development finance institution in consultation with the Reserve Bank of India
- The monetisation of assets by government departments and public sector entities to reduce the debt burden and invest in asset creation
- Creation of a tool to monitor projects under development
- A steering committee of lenders and equity investors to monitor compliances, resource mobilization and design
- An empowered committee for clearance of large projects
- Scaling up India’s medical devices and diagnostic equipment manufacturing under “Make in India” initiative
- Exploring public-private partnership in medical education
- Use of tele-consultation which will link tertiary care institutions to district and sub-district hospitals which provide secondary care facilities
Various issues with the report
Issue of Finance
- The report of the Task Force recommends diversifying financing sources, along with strengthening the existing means.
- The report also suggested for efficient monitoring of project execution and enhancing the execution capacity of private sector participants.
- It said that necessary steps or initiatives need to be undertaken in order to solve the challenge of stressed assets faced by banks by encouraging usage of innovative mechanisms such as loan securitization, InvITs, etc and increased participation of Infrastructure debt funds (IDFs), DFIs, among others.
Neglecting health sector
- While the Covid-19 pandemic has bared inadequacies in India’s healthcare, a task force preparing a fresh infrastructure spending road map has lowered allocation to the sector from what is recommended in the interim report.
- It suggested spending of Rs 1.51 lakh crore in five years ending March 2025 on health and family welfare, according to the final report submitted on April 29.
- That’s lower than 1.5 per cent of the overall Rs 111 lakh crore infrastructure spending target.
- The task force’s allocations contrast with its suggestions on improving healthcare infrastructure at the time when COVID-19 is uprooting various inadequacies.
No measure to address Economic slowdown
- With India already grappling with an economic slowdown and job losses, COVID-19 has struck at the most inopportune time.
- The countrywide lock down had to be neutralized with some sort of stimulus package. This is where the task force report remains silent.
- 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.
- Capacity creation and expansion in important segments like roads and highways, power, railways, renewable sector, ports, airports, metros etc, is a must for 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 onwards once NIP is in place will be more sustainable, rather than a boom-and-bust process.
- Therefore, massive infrastructure development through NIP is a sure way of achieving the government’s $5 trillion economy target.
- 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.
- A country’s level of human and economic development is closely related to its levels of achievement in physical and social infrastructure.
- While physical infrastructure is an important determinant of domestic production, good social infrastructure is vital for human development as well as economic progress through better educated, better skilled, and healthier citizens.
- Striking a balance between the two is the real challenge for any government in action.
- Translating the government’s vision to become a USD 5 trillion economy by 2023-24 may be a formidable task, but is achievable.
- This should, in the long term address all the issues which are either way hurdled with infrastructural inadequacies.