The infrastructure sector holds promise as a focus area for the newly formed second National Democratic Alliance (NDA) government. The election manifesto of the Bharitya Janata Party (BJP) for the 2019 elections had pledged to make a capital investment of 100 lakh crore by 2024 in this sector.
The key challenge before the newly formed government would be to increase private participation in this sector. The first NDA government had initiated efforts to form Private Public Partnership (PPP) models for this sector. They need to take it forward to realise to ensure a massive investment in infrastructure.
Hemant Kanoria, Chairman, Srei Infrastructure Finance Limited, one of India’s infrastructure powerhouses, shared his views with BE. He informed, “Given the fact that the economy has started to lose momentum, unemployment is at 45-year high, capital goods formation has started to fall and, above all, consumption has also started to contract, I do not think NDA 2.0 has any other option than to step up infrastructure creation to re-invigorate the growth engine. Pump-priming the economy through infrastructure creation is critical at this stage as this is one sector which can generate large number of jobs, especially for the semi-skilled and unskilled. I foresee a massive push in roads and highways and rural infrastructure."
He added, “It must be kept in mind that the tax collections have fallen short of the targets and the government has very little headroom to increase spending given its commitment to fiscal prudence. At the same time, there is very little likelihood for private investments to pick up any time soon. In this backdrop, to mobilise resources, I would urge NDA 2.0 to relax the fiscal deficit target at least for a year so that infrastructure outlays can be increased. Meanwhile, the government must take up the disinvestment process more seriously in order to mop up additional resources. Simultaneously, the government must do whatever it takes to incentivise private investments in infrastructure – be it through setting up of autonomous sector-specific regulators, or putting in place dispute settlement mechanisms, or fine-tuning model concession agreements, or creating innovative financial products to channelise private savings into infrastructure. I would expect the government to address some of these issues in the Union Budget 2019-20 to be presented in July.”
The country still faces deep-rooted, persistent infrastructural challenges. According to the April 2019 report of India Brand Equity Foundation (IBEF), India has a requirement of investment worth `50 trillion ($ 777.73 billion) in infrastructure by 2022 to have a sustainable development model established in the country.
The government needs to look into ramping up its railway infrastructure. As of October 2018, Indian Railway’s (IR’s) total route network stood at 68,312 km, which is the fourth largest in the world after the United States, China and Russia and the second largest under a single management/entity. Inadequate capacity remains a major roadblock for Indian Railways (IR). Congestion on IR's network has also led to the inability to increase the number of trains, especially freight, to enhance revenues. IR faces heavily unbalanced revenue streams. With the aim to provide affordable travel for the masses, IR plies passenger trains at low and static prices. To offset the losses, freight tariffs are kept high, making the other modes of transportation such as roads more viable. Lack of skilled staff and heavy dependence on public funding are the other challenges affecting the railways sector. According to India Infrastructure Research, the railways sector offers an investment opportunity of over `10 trillion across various segments and the second NDA government must look seriously into this sector.
Road and transport
Growth in production of commercial vehicles increased to reach 8,94,551 in FY18 at a Compound Annual Growth Rate (CAGR) of 5.87%. As per IBEF data, the Indian government aims to construct 65,000 km of national highways at the cost of Rs. 5.35 lakh crore ($ 741.51 billion) by 2022.
Sudakshina Gupta, Professor,Department of Economics
Dean, Faculty of Arts (Acting) Director, IQAC University of Calcutta, informed BE, “Infrastructure is the base on which an economy develops. So, development of roads, rail and all modes of transport should be the first priority of any government. It is through the transport system that raw materials reach the site of production and finished goods reach the market. Linking of villages and cities through well-built roads is imperative for the economy to grow.”
In the coming years, NHAI’s increased delegation autonomy along with Bharatmala Pariyojana initiative is expected to enable growth in awarding momentum. Former Union Minister for Road Transport and Highways had remarked earlier, “We are planning to rope in an Indian expert with experience in global economy for advising NHAI on asset monetisation.” Much of India’s infrastructure growth will depend on how the new government mitigates the challenges in the road and transport sector.
India is currently the world’s second-largest telecomm unications market with a subscriber base of 1.20 billion and has registered strong growth in the past decade and half, according to IBEF data. With daily increasing subscriber base, there have been a lot of investments and developments in the sector. The industry has attracted FDI worth $32.45 billion during the period April 2000 to December 2018, according to the data released by Department of Industrial Policy and Promotion (DIPP). The National Digital Communications Policy 2018 has envisaged attracting investments worth $ 100 billion in the telecommunications sector by 2022. The Indian Mobile Value-Added Services (MVAS) industry is expected to grow at a CAGR of 18.3% during the forecast period 2015–2020 and reach $ 23.8 billion by 2020.
There are 12 major ports in the country, six each on eastern and western coasts. India has about 200 non-major ports of which one-third are operational. The major ports had a capacity of 1,452 million tonnes by FY18 end. The condition of these ports is intricately related to the country’s economic condition. The Maritime Agenda 2010-20 has a 2020 target of 3,130 MT of port capacity. In FY18, major ports in India handled 679.36 million tonnes of cargo traffic, implying a CAGR of 2.73% during FY08-18. In FY19 (up to December 2018) traffic increased by 3.77% year-on-year to reach 518.64 million tonnes.
Gupta added, “In the sphere of international transport of cargo, India still uses the sea mode more than air. 70% of the international cargo is borne by shipping. Hence, ports and shipping should be given priority. At the same time, since air movement is less time consuming, there should be more investment there as well.”
Port projects by their very nature have long gestation periods. The developers have difficulty in accessing financing from banks and financial institutions. Lack of easy financing options for port projects is also caused by delays in obtaining government approvals, environmental clearances, as well as compliance with coastal regulations. The new government must focus to increase its overall port capacity and streamline these above mentioned bottlenecks to revitalise its economic growth.
India’s rank jumped to 24 in 2018 from 137 in 2014 on ‘World Bank’s Ease of Doing Business - Getting Electricity’ ranking. The increased electrification and per capita usage in India shows a growth in power consumption to 1894.7 TWh in 2022. The Government of India has released its roadmap to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. The central government is preparing a 'rent a roof' policy for supporting its target of generating 40 GW of power through solar rooftop projects by 2022.
The challenges facing the Indian conventional power sector are fuel supply uncertainty and deteriorating distribution companies' finances. Considering the dominance of coal in India's fuel mix, coal shortages can severely obstruct investments in the generation segment. Immediate solutions are needed for reducing power theft, checking leakages, dealing with big defaulters, and improving metering and energy efficiency.