Infrastructure Spending Set to Grow

05 Aug 2019

Infrastructure development is considered a sine qua non for India becoming a US $ 5 trillion economy by 2025 given its multiplier effect across sectors such as steel, cement, auto, and real estate, among others.

Investments in the infrastructure sector, however, have been growing at a slow clip resulting in mounting infrastructure deficit and productivity losses.

The situation is changing gradually, and according to a recent report from Asian Development Bank (ADB) India’s current infrastructure spend stands at above 5% of its GDP, which is higher than most Asian economies. 

According to ADB estimates, India needs investments of around US $ 4.4 trillion during 2016-30 at 2015 prices or an annual average amount of US $ 291 billion comprising 7.4% of the GDP, as against US $ 118 billion currently spent, to meet its mounting infrastructure needs. This is also corroborated by the Economic Survey 2017-18, which states that India needs to spend 7-8% of its GDP on infrastructure every year, which translates into an annual infrastructure investment of US $ 200 billion. However, the country has been able to spend only about half the amount so far.

Augmenting Infrastructure Spending: Government Initiatives

Taking cognizance of the fact that reducing infrastructure deficit is crucial for realising India’s developmental aspirations, the Government has prioritized infrastructure spending in its policy formulation. Significant improvement in infrastructure sectors such as roads, railways, air, shipping and waterways can be seen – the Sagarmala project seeks to connect the coastline and ports to the hinterland; airport modernization and airport expansion in Tier-2 cities is underway and resources have been allocated for logistics and connectivity, especially in industrial clusters, to fast track the infrastructure mission. The aim is to reduce the turnaround time and compliance costs of trading across borders. Projects stuck for many years have been revived. All these are helping bring about visible and qualitative changes in the lives of citizens.

Alongside public investment, private sector investments are being encouraged and changes have been initiated in the model concession agreements to ensure a rational risk allocation for private investors. Several decisions to revive public private partnerships across the spectrum from railways to ports and roads have been taken, and the new arbitration act and the decision for one-time settlement of pending cases in the construction sector are meant to facilitate private investment.

Budget 2019-20: Renewing the Focus on Infrastructure

The Union Budget 2019-20 has allocated INR 100 lakh crore (nearly US $ 1500 billion) for investment in infrastructure over the next five years. It also proposes a comprehensive restructuring of the National Highway Programme, inducting private capital through the public-private partnership route for the completion of railway tracks as well as manufacture of rolling stock and delivery of passenger freight services. For ensuring power connectivity, the concept of “One Nation, One Grid” is timely.

Reflecting the Government’s commitment to infrastructure development is the improvement in infrastructure: the length of national highways has increased to 122,434 kms in FY18 from 92,851 kms in FY14; energy deficit has declined to 0.7% in FY18 from 4.2% in FY14 and the number of airports has increased to 102 in 2018.

Within this exciting infrastructure story, CII has assumed a lead role in recommending policies and also promoting construction and construction equipment industry.

CII’s Infrastructure work spans all subsectors of the infrastructure sector – real estate, housing, construction, shipping, railways, road & highways, smart cities, and civil aviation. CII undertakes policy advocacy at the Central and State Government level and works closely with relevant Ministries such as the Ministry of Civil Aviation, Ministry of Railways, Inland Waterways Authority of India, and think tanks to discuss key developmental issues and growth roadmaps.

According to a CII survey undertaken in 2018, liquidity crisis and non-payment of dues to the infrastructure companies are the key issues to be addressed for future growth. There are about 1.8 lakh cases pending with tribunals which can be fast-tracked to unlock investment potential.

In 2000, CII launched a construction equipment and technology trade fair, EXCON, which brings together all infrastructure stakeholders, including policymakers, investors, and developers on a single platform. Not surprisingly, given its ambit and scope, EXCON has emerged as the largest construction equipment exhibition in South Asia and serves as a unique platform for showcasing the products of the construction equipment industry in the SAARC region, attracting huge footfalls from the domestic and international market.

The 10th edition of EXCON is being organised by CII between 10th – 14 December 2019 at Bengaluru, Karnataka with the Indian Construction Equipment Manufacturers Association (ICEMA) as sector partner for the event. Excon is an ideal forum for the fraternity to converge, network and establish partnerships and joint ventures in the construction equipment industry.

India’s infrastructure requirements are humongous, as is the potential. Continued focus on infrastructure spending will rekindle fresh investment, facilitate ease of doing business, improve the quality of life and give a boost to India’s inclusive growth.

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