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National Infrastructure Pipeline – Infrastructure Development, Budget 2021

The budget speech expectedly has given a strong signal for infrastructure development focusing on actualizing the ambitious national infrastructure pipeline targeting an investment of Rs.111 lakh crores over 5 years. The signal comes from the announced budgetary allocations and decisions (a) central allocation of Rs5.54 lakh crores, (b) state allocations of Rs.2 lakh crores, (c) announcement to tap into budgetary resources of PSUs and wide-ranging InvITs monetising assets in highways, power transmission, gas pipelines, dedicated freight corridors, airport.

The above announcements are strengthened by announcement of establishing Bad Bank in nature of AMC; a development financial institution with a seed investment of Rs.20,000 crores and a target to be build a lending portfolio of Rs. 5 lakh crores in 3 years; an extensive disinvestment program with target of Rs.1.75 lakh crores; zero coupon bonds that will help arrange the infra financing.

The devil lies in the details and the success in reviving the economy would depend on effective structural reforms in infrastructure sectors removing barriers to growth + how the government goes about monetising the land bank and assets held by PSUs.

Quote by Amit Kapur published in Business World, Deccan Herald, Firstpost, News Free Ads World and Mumbai Live.

JSA Viewpoint – Infrastructure – Economic Survey

The Economic Survey 2021 strikes the right cords with respect to Indian Infrastructure by highlighting

  • Significance of robust infrastructure for overall economic growth emphasizing that in the absence of adequate infrastructure, the economy operates at a suboptimal level.
  • Ambitious targets of infrastructure investments of Rs.111 lakh crores (US$ 1.5 trillion) during FY 2020 to FY 2025 under the National Infrastructure Pipeline with a projected 79% investment (Rs.87.7 lakh crores) coming from Central and State Governments with 21% (Rs. 23.3 lakh crores) from private sector – 54% being shared by energy and transport (roads and railways).
  • In the past most of the private investment has come through public private partnerships.
  • Recent policy initiatives in terms of the Atma Nirbhar Bharat and cabinet approval of the PSU policy of opening up all sectors of the economy (even sensitive ones) to private sector with an emphasis on disinvestment.
  • ES-2021 acknowledges that gross capital formation has slid from 34% of GDP (in FY-2015) to lowest in past 2 decades at 26.7% of GDP (in FY-2021), identifying this as the single largest contributor to the contraction in GDP in FY-2021.

There are some generic feel-good statements regarding expansion of public investment which is expected to crowd private investors, and deregulation and liberalisation which is expected to unlock entrepreneurial energies and improve private investor’s risk appetite. However, perhaps advisedly it leaves a very important element of how will this infrastructure development get financed unaddressed.

Let us watch this space in the Budget speech for some concrete investment commitments as also reform proposal to address the 4 laggards in Indian regime that is shackling the entrepreneurial spirits – Enforcing Contracts, Registering Property, Starting a Business and Paying Taxes.

Viewpoint by Amit Kapur.