- To achieve the GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (Rs. 102 lakh crore) over these years on infrastructure.
- National Infrastructure Pipeline (NIP) takes account projects to be implemented over the next five years (2019-2025) in 18 States.
- NIP includes both economic and social infrastructure projects. (see sector-wise breakup in picture)
- Economic infra includes: Roads, energy, railways shipping, steel etc.
- Social infra includes: Education, health, sports etc.
- Expected yearly investments, share of funds from centre, states and private entities in these investments and status of projects in NIP has been shown in picture below.
The report identifies five specific reasons why Indian infrastructure needs an overhaul.
- Increasing urbanization: 42 per cent of population to live in urban areas in 2030 as opposed to 31 per cent now.
- Growing working-age population: It is expected that the working-age population of India will grow ~1.2x times during 2015-2030. India is expected to have the world’s largest working-age population of 1.03 billion (~68%) by 2030 compared with 0.97 billion in China and 0.22 billion in the US.
- Contribution of urban areas in total employment will increase at a higher rate than the contribution of rural areas during the period 2018-30. The proportion of urban areas in total employment will increase from 29% in 2012 to 41% in 2030 while that of the rural areas will decrease from 71% in 2012 to 59% in 2030.
- Shift to services-based economy: The trends in GDP and employment are reflective of India’s economy gradually transitioning from an agrarian economy to a service centric economy.
- Climate change and disaster resilience: There is a clear need for ensuring that all new and existing infrastructure systems are climate and disaster resilient.
Benefits expected from NIP
- For Economy: Economic Survey 2018-19 argues that growth can be sustained by a virtuous cycle approach where investment is the key driver that drives demand, creates capacity, increases labour productivity, improve ease of living, generates jobs etc. NIP is prepared as a pipeline of projects based on viability and cost considerations to enable such investments.
- For Government: Well-developed infrastructure improves revenue base of the government, and ensures that quality of expenditure is focused in productive areas.
- For Developers: Make developers better prepared for project bidding, reduce aggressive bids/ failure in project delivery and enhanced access to sources of finance.
- For Banks/ financial institutions (FIs)/ 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.
Important reforms suggested in the report
- Improving project preparation processes with transparent policy and legislative framework, presence of an empowered public institution for infrastructure planning, presence of guidelines, national standards, well-defined workflows etc.
- Enhancing execution capacity of private sector participants: Collaborations and joint-ventures with strong global infrastructure developers must be facilitated to build domestic
- Robust enabling environment to reduce delays and prevent financial stress. It includes:
There should be optimal risk sharing between the government and the private sector, to encourage private sector participation.
- Adoption of international contract standards by all infrastructure departments and strict legal enforcement of contracts.
- Adequate safeguards in case the project termination in the form of clearly quantified termination payments should be there.
- Dispute resolution through institutionalising dispute resolution mechanism to efficiently resolve disputes related to PPP projects. Investments must be made in the institutions created under The Commercial Courts Act 2015, The Specific Relief (Amendment) Act 2018 and the New Delhi Arbitration Centre Act 2019 to enable them to deliver sound results in enabling speedy resolution.
- Strengthening infrastructure quality: National Framework for Infrastructure Quality must be laid down in each sector within the next three months, based on global and national standards.
- Promoting competition to improve collaboration between Competition Commission of India (CCI) and sector regulators to ensure coordination and operationalisation of the National Competition Policy 2011 to establish uniform competition principles across different sectors.
- Financial sector reforms:
- Revitalising the bond and credit markets: to ensure the financing for infrastructure projects does not suffer.
- Strengthening the municipal bond market in India: to ensure effective participation of states.
- Revitalising asset monetization: InvITs and REITs are promising but haven’t taken off as yet in a big way.
- Enabling User charges to finance infrastructure.
- Long-term financing landscape by encouraging usage of innovative mechanisms such as loan securitization, increased participation of Infrastructure Development Funds (IDFs), Development Finance Institutions (DFIs) etc.
Concerns raised about the report
- Lack of fiscal space: In FY 2019, India’s total infrastructure investments were about Rs. 10 lakh crores only. And given the challenges like high debt-to-GDP ratio, fiscal deficit and increasing twin balance sheet problem, it would be very tough to finance these projects.
- Lending by banks: Infrastructure financing is the cause of a major part of the bad loans in banks. So, banks would be apprehensive to finance such a large scale of investment.
- Cooperation from States: centre and the states have to work together to sort issues like land acquisition and environmental clearances which have imposed huge time and cost delays on several key projects nationally.
- Lack of new projects: About 42% of identified projects are already under implementation, 19% are under development.