The economic growth of a country is directly dependent on the development of its infrastructure. The fabric of a nation – its roads and highways, airports and ports, railways, water systems and telecommunications – form the foundation which determines its economic prosperity. In India, infrastructural development has contributed more to economic growth than both private and public investments. As such, investment in the infrastructure sector has substantially increased over the last 10 years, with infrastructure investment as a share of India’s total expenditure rising from around 23% to 32.5% (2015).
The Union Budget 2016 laid considerable emphasis on infrastructure spends following unanimous consensus that ramping up the country’s infrastructure is essential for achieving double-digit GDP growth. This found expression in the form of the National Investment and Infrastructure Fund (NIIF) which envisages a starting corpus of `40,000 crores to bridge the investment gap. This perspective was further corroborated in the Budget announcements of 2017 where an allocation of `3,96,000 crores has been made to boost infrastructure.
To further increase the appeal of the sector to potential global and domestic investors, the Government is reviewing ways to push Public Private Partnership (PPP) in infrastructure. However, till the PPP model picks up, public expenditure will have to be the driving force if infra investments are to support economic growth. In this context, CII believes that the idea of Government entities partnering with each other makes sense due to the following reasons:
• It allows cash-rich public sector undertakings to finance projects with another partner/ partners which has/have the mandate and the expertise.
• It cuts the project development time because the system does not have to go through the procurement processes.
• There is ready access to commodities like land, etc, especially when public companies partner with State Governments.
• Public entities can garner permissions faster than private ones.
• There is enough cash flow to support projects without the fear of predatory pricing of public goods (by returns-concerned private entities).
This concept of partnership of public entities can support projects across roads and highways, railway, power, and even ports. It is evident that there is a vast gap between the current infrastructure of the country and the required level, which also opens up huge opportunities in the sector. However, India has to focus on correcting the fundamentals, including policy stability, adequate attention to various sub-sectors, addressing viability of projects, efficiency in management of projects, speedy implementation and adopting technology to support efficiency. The good news is that since the inception of the current Government, ways have been created to rejuvenate stalled projects and put slow ones back on track. With renewed focus on the sector, the expectation is that the combination of reforms will create a better investment climate in India for the sector.
Source: Communique March 2017