Thursday, August 5, 2021
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Big bang announcement in times of tottering economy

Nirmala Sitharam, Finance Minister,For an economy that is tottering, a big bang announcement from the government can sometimes work to turn around ones sentiment. The unveiling of a mega push to the infrastructure investment adding up to Rs. 102 lakh crore over the next five years by Finance Minister Nirmala Sitharaman belongs to this category. Projects in energy, roads, railways and urban infrastructure under the National Infrastructure Pipeline (NIP) have been identified by a task force. About 42 per cent of such identified projects are already under implementation, 19 per cent are under development and 31 per cent are at the conceptual stage.

The NIP task force appears to have gone project-by-project assessing each for viability and relevance in consultation with the States. Considering that the NIP will be like a window to the future, a constant review becomes paramount if this is not to degenerate into a mere collation and listing of projects. A periodic review as promised by the Finance Ministry is necessary. The government’s push on infrastructure development will not only enable ease of living such as metro trains in cities and towns, but also create jobs and increase demand for primary commodities such as cement and steel. From this perspective, this push to invest in infrastructure is welcome.

Rupee conversion of the $2.85 Tr nominal GDP value is: Rs.200 Tr. Rs.10 Tr investments are needed for Value Additions (VA) that would offer at least Rs.750 billion in terms of minimum benefits to the People by way of wages/salaries/business profits etc. Infrastructure project investments cannot accrue, offering benefits to the People, except at marginal levels. Instead, we would need more Industrial/Agriculture/R&D works/Projects leading to more spin-offs.

One estimate of annual VA systems, adding to enhance Industrial/Agricultural and related value enhancing (and benefiting People by way of wages etc) would have to be on a continually added annual basis: Rs.9 Tr in 2020, and thereafter @ Rs.12 Tr, Rs.15 Tr, Rs.18 Tr, Rs.21 Tr – till 2025. This system of Investments in VA projects (Industry/Agriculture etc, including R&D to effect spin-offs) could take the Indian GDP level to $5 Tr – by 2025. In such cases, the Government has to be judicious in identifying the projects to be put in the pipeline is the easy part. Implementing and commissioning them will be the more difficult one. There are a few hurdles that the NIP task force needs to watch out for. First, the financing plan assumes that the Centre and the States will fund 39 per cent each while the private sector will chip in with 22 per cent of the outlay. Going by the present fiscal situation, it will be no small challenge for the Centre to raise Rs.39 lakh crore, even if it is over the next five years. The financial position of States is even more perilous. Secondly, the Rs. 22 lakh crore expected from private investment also looks steep considering the lack of appetite for fresh investment by the private sector in the last few years. In fact, this factor has been a major drag on economic growth. Given the scale of investment, debt will play an important role and it remains to be seen if banks have gotten over their apprehensions on infrastructure financing as a major part of their bad loans originated there. Finally, cooperation from States becomes very important in implementing infrastructure projects. The experience on this count has not been very happy till now. While these are genuine obstacles that the task force needs to manage, these should not detract from the need for a concerted effort to invest in infrastructure. The key will be following up and reviewing the pipeline at regular intervals.

(The views expressed by the author in the article are his/her own.)

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