Budget 2022: Infrastructure Investment for future growth

20 Jan 2022

The Union Budget period is a time when we, as a nation, reflect on our achievements and chalk out our path for the coming year. The Centre has so far been able to maintain its financial trajectory with the fiscal deficit at 46.2% of the Budget Estimate during the first eight months of the year, thanks to good revenue collections and restrained expenditure.

The government has not only displayed forethought but also excellent management of its finances. Going forward, it would be prudent to adhere to the fiscal deficit target of 6.8% of the GDP by hastening the process of disinvestment of the identified PSUs such as LIC, BPCL and Shipping Corporation of India.

Further, the proceeds from this disinvestment could be used for creating social and physical infrastructure, in both urban and rural areas, which would in turn act as a catalyst for growth by crowding in private investment.

Given the importance of infrastructure in the development of a nation, it is suggested that the project implementation under the National Infrastructure Pipeline (NIP) and Gati Shakti Scheme be accelerated. A list of the shelf-ready projects that are present in the NIP could be shared with the relevant states and departments. Boosting private investment in infrastructure can help sustain the momentum.

In this light, the government needs to put in place a conducive regulatory framework, transparent bidding process, flexible contract management and a credible dispute settlement procedure to attract private investment in the National Monetisation Pipeline.

We also advocate the implementation of the Kelkar Committee recommendation for the PPP projects as it would help in providing a transparent and stable tax regime for private investors.

In order to strengthen the funding environment further, we recommend the implementation of NITI Aayog’s suggestion on the provision of tax incentives for investment in Infrastructure Investment Trusts (InvITs) and to bring them under the Insolvency and Bankruptcy Code.

To further enhance private investment, it is imperative to simplify and fine-tune our business environment. Though the country has taken great strides in easing the start of a firm and simplifying the regulatory environment, there is still some scope to improve the process of doing business.

In this regard, we put forward that the government must think towards decriminalising business interfacing laws including the Partnership Act, IBC, Consumer Protection Act, Competition Act, Metrology Act, etc.

At present, businesses, especially MSMEs, already face huge costs while also burdened by delayed payments. It is an earnest suggestion to the government to release all dues, whether outstanding payments or tax refunds to the industry immediately. Further, we would urge the government to actively use the Trade Receivables Discounting System (TReDS) for settling the delayed payments to MSMEs.

Moreover, to maintain the momentum of economic development, we must also invest in social infrastructure. The country must start investing in its youth to reap the benefits of the much-talked-about demographic dividend. In this effort, education and healthcare are the two prominent avenues that could help the government not only realise this dividend but also make the country future-ready.

Education at the grassroots level, as envisioned by the National Education Policy 2020, is imperative and the government must launch a time-bound mission (five years) to ensure universal acquisition of foundational literacy and numeracy for all children by Grade 3.

To make the coming generation digitally literate, the government could provide special budgets to schools for digital infrastructure and funds for reskilling/ upskilling school teachers to enable them to adapt to the new teaching methodologies. This is a lacuna that has also been brought to the fore by the current pandemic.

The other lacuna that has been laid bare by Covid is the state of the healthcare infrastructure in the country. The nation as a whole suffered a great loss of lives on account of the pandemic, especially during the second wave when the virus reached the hinterland—making it clear that for a country of our size and for a population as big as ours, we must actively invest in strengthening the public health infrastructure.

In this light, it is suggested that the government raise its investment in healthcare gradually to at least 2.5–3% of GDP by 2025, from 1.3% at present. Simultaneously, public investment can be supported by private funding through the creation of real estate investment trusts (REITs) on healthcare.

We believe that the government’s focus on infrastructure development, both physical and social, would have a multiplier effect on the economy and reap benefits not only in the near-term but for the years ahead.

The government must carefully balance the need for fiscal consolidation with the need to spend in essential areas such as health and education. The divestment of PSUs and asset monetisation need to be implemented quickly to raise adequate resources.
The article first appeared in The New Indian Express on 2nd January, 2022