On India’s 75th Independence Day, Prime Minister Narendra Modi announced that the Centre will launch ‘PM Gati Shakti Master Plan’, a Rs. 100 lakh-crore project for developing ‘holistic infrastructure’ and to and give an integrated pathway to country’s economy.
What are the focus areas of the project?
- Gati Shakti will be a National Infrastructure Master Plan for our country
- Leveling up local manufacturers: The Gati Shakti plan will help raise the global profile of local manufacturers and help them compete with their counterparts worldwide.
- Economic zones: It also raises possibilities of new future economic zones. India needs to increase both manufacturing and exports.
- Infrastructure development: Infrastructure development has the ability to create a multiplier effect with every rupee invested, yielding much higher returns.
- Employment opportunity: To act as a source of employment opportunities for the youth in future.
Why need such a plan?
- The push for infrastructure is in line with the government’s efforts to step up capital expenditure in infrastructure to promote economic growth.
- Infrastructure development has the ability to create a multiplier effect with every rupee invested, yielding much higher returns.
- A similar plan, called the National Infrastructure Pipeline was previously announced.
Let us learn about the National Infrastructure Pipeline in short.
What is the National Infrastructure Pipeline (NIP)?
- NIP includes economic and social infrastructure projects.
- During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) 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.
What are the 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 in 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.
Why the infra sector is given more emphasis these days?
- Pandemic induces Slowdown: Slowdown due to the pandemic is a good time to catch up on infrastructure capacity and increase the expenditure.
- Multiplier effect on job creation and economy: Infrastructure spending is a critical component of the fiscal stimulus as it has multiplier effects on the economy and job creation.
- Inclusive Growth: Quality infrastructure is important not only for faster economic growth but also to ensure inclusive growth and uplifting standard of living of people.
- Easy access for essential Social Services: 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.
What are the recent projects included in the Infrastructural planning?
- 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.
What are the key infrastructure sectors which have a massive role in India’s economic development?
(1) Green Infrastructure:
- Green infrastructure refers to natural or semi-natural ecosystems that provide water resource management by introducing the natural water cycle into urban environments.
- It provides effective measures to manage urban flooding, water supply and quantity regulation, at the same time generating multiple environmental benefits.
- India will benefit if investments are steered towards green-infrastructure projects.
- Green bonds can provide a long-term source of debt capital for renewable infrastructure projects.
- Germany is one country that has been a nest for the innovation and application of green technologies. This can provide a useful lesson for India.
- By reducing local temperatures and shading building surfaces, green infrastructure reduces the cooling demand of buildings, thus cutting energy needs.
(2) Logistics Sector:
- The logistics sector needs to be improved because of its impact on improving competitiveness in the economy.
- Improving logistics sector has huge implication on exports and it is estimated that a 10% decrease in indirect logistics cost can increase 5-8% of exports.
- The Indian logistics sector provides livelihood to 22 million-plus people and improving the sector would facilitate a 10% decrease in indirect logistics cost, leading to a growth of 5-8% in exports.
- The worth of Indian logistics market would be around US$ 215 billion in next two years compared to about US$ 160 billion currently. Today, the Indian logistics sector is a sunshine industry and is going through a phase of transformation.
- key objectives for logistics in India, to be achieved in the next five years:
- Creating a single point of reference for all logistics and trade facilitation matters in the country which will also function as a knowledge and information sharing platform
- Driving logistics cost as a % of GDP down from estimated current levels of 13-14% to 10% in line with best-in-class global standards and incentivize the sector to become more efficient by promoting integrated development of logistics
(3) Social Infrastructure:
- Social services include, education, sports, art and culture; medical and public health, family welfare, water supply and sanitation, housing; urban development; welfare of Schedule Castes (SCs), Schedule Tribes (STs) and Other Backward Castes (OBCs), labor and labor welfare; social security and welfare, nutrition, relief on account of natural calamities etc. Expenditure on ‘Education’ pertains to expenditure on ‘Education, Sports, Arts and Culture’.
- India is committed to achieve these SDGs and a strong social infrastructure is key to achieve them.
- The government has been focusing on provisioning of assets such as schools, institutes of higher learning, hospitals, access to sanitation, water supply, road connectivity, affordable housing, skills and livelihood opportunities.
- This gains significance given the fact that India is home to the world’s youngest population as half of its population is below the age of 25.
- It has also been estimated that demographic advantage in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world. This demographic advantage can be reaped only if education, skilling and employment opportunities are provided to the young population.
- Being a developing economy “there is not enough fiscal space” to increase expenditure on critical social infrastructure.
- India has made significant progress in quantitative indicators such as enrolment levels and physical infrastructure like construction of school buildings, drinking water facilities, toilet, etc.
- India has been successful in achieving gender parity in the school sector and in higher education it is moving towards a better gender parity.
- Growing expenditure on health is burdening the public in general and is one of the highest in South Asian countries as per Economic Survey 2020-21.
- The major economies of the world have always realized the potential of shipping as a contributor to economic growth. For instance, control of the seas is a key component of China’s Belt and Road Initiative (BRI).
- The entire shipping infrastructure in peninsular India only helps foreign shipping liners. Foreign ship owners carry our inbound and outbound cargo. This is the case in container shipping too.
- India has unrealized potential in shipping, with 7,500 km of coastline and 14,500 km of navigable or potentially navigable waterways.
- More than one billion tonnes of cargo was handled across over 200 ports in India in 2015 with maritime logistics accounting for 90 per cent of international trade by volume and 72 per cent by value.
- As a country, we have still not optimized our carrying capacity. Much of foreign currency is drained as transshipment and handling costs every day.
- As a result, there is a wide gap between carrying capacity and multi-folded cargo growth in the country.
- India needs to revamp institutional and regulatory environment around ports.
- Corporatization of ports is one way of achieving efficient and world class ports by the conversion of major port trusts into truly commercial organizations.
- In terms of infrastructure, it is important to maintain draft to serve bigger vessels, ensure mechanization of ports through introduction of new equipment and procedures, build new facilities, upgrade existing facilities and automate systems/procedures.
(5) Transport infrastructure
- India’s population growth and economic development requires improved transport infrastructure, including through investments in roads, railways, and aviation, shipping and inland waterways.
- A key goal of India’s suite of regulatory reforms is to attract more foreign investment into the sector, including through new investment vehicles and innovative financial instruments. By 2030, transport is expected to attract over 60 per cent of infrastructure investment in India.
- We need sound public transport infrastructure because if we do not have proper infrastructure we cannot have urbanization.
- The Government of India has a range of projects to improve road infrastructure-
- The National Highways Development Projects, which require investments of up to USD170 billion
- The Bharatmala project, stretching from India’s western to eastern land borders which is unique and unprecedented in terms of its size and design.
- The Northeast Express Highway (1,300 km express highway in northeast India).
- Technologically sound projects which are engineering marvels such as the Dhola-Sadiya Bridge, Chenani Nashri Tunnel and Bogi-Beel bridge and world-class expressways such as the Eastern Peripheral Expressway and Western Peripheral Expressway are the recent key achievement showing India’s technological readiness in the sector.
- India’s railways play a major role in affordable transport of passengers and cargo across the country
- It is one of the largest networks in the world with 7,216 stations; 92,000 km of track and 1.3 million employees.
- Indian railways carried eight billion passengers and transported over one billion tonnes of freight in 2017–18
- However, most major corridors are facing severe capacity constraints and there are safety issues.
- The Ministry of Railways plans to improve and expand the rail network, renew the train fleet, and improve passenger safety.
- It plans to invest up to $170 billion over the next five years, with the largest proportion aimed at network expansion and decongestion, and safety.64 Investments are also planned for station redevelopment and the dedicated freight corridor between Delhi and Mumbai.
- The Government of India is seeking greater private investment through:
- Allowing 100 per cent FDI in railways for construction, operation and maintenance of suburban corridor projects, high-speed train projects, railway electrification and signaling, among others.
- Encouraging the development of new investment vehicles such as the Railways of India Development Fund to attract long term investment from global institutional investors.
What are the major constraints in the implementation of infrastructural projects?
The major implementation constraints that will be faced possibly in future are:
- Revenue shortfall: Slippage in revenue estimates may not be ruled out on account of the realization of lower than anticipated increases in nominal GDP growth, direct tax buoyancy, and disinvestment targets.
- Lesser funds with States: The Union government has accepted the 15th Finance Commission report recommendation, according to which vertical share of tax devolution from the center to states has been reduced 42% to 41%.
- Increasing Fiscal Deficit: Infrastructure development in India will be funded by fiscal stimulus. This can be reflected as the Centre has indicated taking the fiscal deficit to 4.5% of GDP by 2025-26.
- However, the rising fiscal deficit can cause macro-economic stability issues like high inflation, crowding out, a downgrade of international ratings, etc.
- Structural Problems: Due to the lengthy processes in land acquisition and payment of compensation, the rate of implementation of projects is very slow on global standards.
- Getting approvals are very difficult in terms of land access, environmental clearances; impending litigation in court delays the infrastructure projects.
- 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
- 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.
- It is seen that investments in infrastructure equal to 1% of GDP will result in GDP growth of at least 2% as infrastructure has a “multiplier effect” on economic growth across sectors.
- 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.
- Over the period, formalization of the economy has taken place and any growth now onwards once projects like Gati Shakti Master Plan, NIP is in place will be more sustainable, rather than a boom-and-bust process.
- Therefore, massive infrastructure development 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.
- Huge fiscal stimulus, provided by the government in the Budget 2021 is a step in the right direction. However, it needs to address structural and macroeconomic stability concerns, emanating from high public expenditure.