Infrastructure plays a key role in the development of the global economy, as the UN’s Sustainable Development Goals make clear. The availability of transport, communications, electricity, clean water and sanitation and health infrastructure has a huge impact on individuals’ quality of life and well-being. And for businesses, reliable roads, railways, ports and digital infrastructure are all fundamental to efficient production, supply chains and trade, all of which fuel economic growth and ultimately help reduce poverty.
It’s an imperative that has long been recognised in India. Successive governments have accepted the need to boost infrastructure to maintain India’s high growth rate and meet the goal of becoming a US$5 trillion economy by 2025. The government estimates it needs to spend US$1.4 trillion on infrastructure, according to its Economic Survey 2020/21.
‘Public investment must continue to pump-prime private investment’
Pump-priming capex
The Indian government put infrastructure projects at the heart of its latest budget for 2022/23, which was announced in early February. ‘Public investment must continue to take the lead and pump-prime the private investment and demand in 2022/23,’ said Indian finance minister Nirmala Sitharaman, unveiling the measures.
Capital expenditure in the budget rose by 35% from US$73.6bn to US$100bn, representing around 2.9% of gross domestic product, and one of several expenditure hikes during the course of the past two years.
Analysts are optimistic that the spending will have a positive impact. Shashikant Hegde, CEO of data provider Projects Today, says: ‘The proposed 2022/23 capex is spread across major infrastructure projects in sectors like roadways, railways, urban transport, multimodal logistic parks, irrigation, housing, etc. If executed as per schedule, this will certainly pump-prime the capex activities in India.’
‘For double-digit economic growth, India needs to develop its infrastructure’
The investment is crucial if India is to compete with rivals such as China. Although capital expenditure has increased dramatically in the past two budgets, overall investment in Indian infrastructure as a share of GDP has averaged around 4% over the past decade. In China, by contrast, the figure stands at around 6%. Meanwhile, economic growth is predicted to reach 9% in India and 5% in China for the 2022 financial year.
India’s prime minister Narendra Modi has also stressed the need for economic self-reliance. ‘The investment lined up by the government of India is basically to meet the infrastructure deficiency the country is currently facing,’ explains Hegde. ‘If India wants to enhance its manufacturing competitiveness to improve exports and move towards double-digit economic growth in the near future, it needs development of infrastructure.’
Catching up
The budget increase is crucial to other financial incentives, notably the National Infrastructure Pipeline (NIP). A five-year programme launched in 2019, the NIP is a series of investment projects with a focus on roads and railways, to which the Indian government initially allocated US$1.4 trillion. A key objective is to set up a multimodal transport system, which will facilitate faster, more cost-effective movement of goods.
Alongside this is the National Monetisation Pipeline, launched in August 2021 and worth around US$80bn. It aims to unlock value in brownfield projects by selling revenue rights (but not asset ownership) to the private sector and using the funds for infrastructure creation.
Analysts identify plentiful multiplier and other benefits from infrastructure investment, especially in the construction and manufacturing sectors, for which it would be a timely boost. ‘Small manufacturing businesses suffered the most [during the pandemic] because of the fall in demand for their products and the disruption in the logistics chain,’ Hegde points out.
Implementation challenges
However, investment is only part of the story. Infrastructure projects in India are frequently plagued by delays and spiralling costs. According to Hegde, only around 25% of the projects listed in the NIP are currently being implemented.
As a result, he says, the NIP ‘may not be effective in solving the current scenario, and hence the urgency shown by the government to roll out the remaining projects in a planned and coordinated manner, so that once a project enters the execution stage, its implementation is not delayed’.
Equally important is investment in Indian infrastructure services rather than just hardware, according to Junaid Ahmad, country director for the World Bank in India. He says: ‘By themselves, more water pipes may not lead to regular water supply. More buses will not automatically give rise to an efficient urban transport system, and more airplanes will not necessarily translate into better airline services. An infrastructure stimulus programme must therefore include a concerted and long overdue push to convert existing public sector departments and agencies into efficient and accountable public sector companies.’
‘Budgetary goals must be translated into well-implemented programmes that improve livelihoods’
Digital bridge
Another key government initiative aims to streamline the infrastructure planning and implementation process through technology. The US$1.3 trillion Gati Shakti national master plan for multimodal connectivity, launched in November 2021, will create a platform connecting the work of 16 ministries. The goal is to integrate the planning and coordinate the implementation of all infrastructure connectivity projects across the country.
Hegde says: ‘If the projects are monitored continuously in a multi-accessible platform like Gati Shakti, the delays faced by a project will come down drastically.’
Elias George, partner and head of government and public services at KPMG in India, agrees. He stresses the need to translate the budgetary goals ‘into well-implemented programmes that will provide benefits in terms of better livelihoods and lifestyles for all. The Gati Shakti plan could be seen as a step in this direction.’
Other advances in technology have already addressed some of the problems. ‘With the implementation of e-tendering for most projects, corruption and delays in awarding tenders have decreased over the years,’ says Hegde.
Meanwhile, NIP programmes to enhance the digital economy include US$200m for incentivising digital payments. The customs and income tax department is also developing an interface to promote paperless processing. ‘One could see a continued thrust on moving towards a digital economy, and more particularly on digital payments/fintech adoption,’ George says.
Jobs dividend
The investment in infrastructure should create welcome opportunities for the subcontinent’s huge labour market. ‘One of India’s primary challenges is to absorb the around 12 million people who are added to the employment cohort annually,’ George says. ‘The cardinal focus areas of the budget – ramping up infrastructure creation, improving agricultural and rural facilities, among others – are all measures towards providing job opportunities/wage security to a significant part of the population.’
