Why infrastructure development needs special focus in upcoming Union Budget

Raj Kumar | December 31, 2020
Three sectors that must have specific attention to revive the economy are agriculture, healthcare, and infrastructure
Industry associations have already recommended that public investments in agri infrastructure be increased while healthcare expenditure as a percentage of GDP should be raised to 2%
Expectations for Infrastructure: As the Union Budget 2021 is barely weeks away, the focus will turn to sectors calling for immediate attention. With the pandemic having disrupted almost all industries, there is no doubt that industry at large and the economy in general needs handholding. Nevertheless, three sectors that must have specific attention to revive the economy are agriculture, healthcare and infrastructure. While the case for agriculture and healthcare needs no rationale, the importance of infrastructure calls for some elaboration. First, agriculture and healthcare both require modern infrastructure to ensure better outcomes, respectively.
Handholding and Funding
While there have been some signs of green shoots, it should be emphasized that as the threat of a third COVID-19 wave looms large, the economic recovery remains fragile. Therefore, in ascertaining that any recovery gains momentum, the upcoming Budget must frontload infrastructure investments.
This is particularly needed because the states contribute almost 40% of the total infrastructure investments in India. But due to pandemic-related disruptions, the states have high fiscal deficits and are hit with liquidity issues. Therefore, the Centre needs to shoulder more of the burden of raising funds to drive infrastructure investments and projects. But the infrastructure sector should be sanctioned on priority in the Budget because any delay will impact the possibility of a faster economic revival.
Industry associations have already recommended that public investments in agri infrastructure be increased while healthcare expenditure as a percentage of GDP should be raised to 2% for building hospitals, training institutions and suchlike across India.
Given the Centre‘s focus on its Atmanirbhar Bharat mission, infrastructure development can be vital in moving steadily towards achieving these goals. The Centre will be better placed in raising funding investments for the National Infrastructure Pipeline (NIP), which may include both public and private sector funds. Projects worth Rs 44 lakh crore are already being implemented as part of the Rs 111 lakh crore NIP, with the latter amount slated to be spent by 2024-25.
Meanwhile, projects worth Rs 22 lakh crore (or 20% of NIP) are under varying development stages. But proper and timely implementation is indispensable if ambitious objectives are to be met. The NIP framework currently comprises 39% investment by the Centre, 40% by states and 21% from the private sector. Considering the present market conditions, any shortfall from either of the other partners may require that the Centre fill the deficit for NIP goals to remain on track.
Significantly, under NIP, among others, Rs 25 lakh crore has been allocated for the energy industry, Rs 20 lakh crore for highways, Rs 16 lakh crore for irrigation, rural agriculture and food processing, Rs 16 lakh crore each for Railways and mobility, respectively, and Rs 14 lakh crore on digital infrastructure.
Incentives and Implementation
Incidentally, the Finance Ministry has already notified the VGF (viability funding gap) Scheme. Through this, select infrastructure projects would be given financial support for facilitating implementation. ACCORDING TO THE ECONOMIC AFFAIRS SECRETARY, via VGF, up to Rs 200 crore funding, would be cleared by an Empowered Committee (EC). Projects above Rs 200 crore will be approved by the EC under the Finance Minister. Termed the Scheme for Financial Support to Public-Private Partnerships in Infrastructure, this Central scheme will be administered under the Ministry of Finance. Such projects would be implemented by a private sector entity that will be selected by the government or a statutory body through an open competitive bidding process.
Another Central initiative to boost infrastructure projects is the Rs 1.46- trillion ($20 billion) Production-Linked Incentive (PLI) Scheme, which aims at attracting global manufacturers to boost indigenous manufacturing. The PLI scheme is in sync with the Atmanirbhar mission, which seeks to reduce the country‘s dependence on foreign supply chain networks, especially those from the Dragon Kingdom. Apart from supply-chain reliance, self-sufficiency in goods such as solar PV panels can have strategic and security benefits, too, helping India gain a sizeable share of global value chains in solar manufacturing.
But the criticality of proper implementation in the above projects cannot be overemphasized. A report from the Union Ministry of Statistics and Programme Implementation is revealing. Out of the 1,634 infrastructure projects it tracks, as many as 552 were delayed. In other words, one out of three large projects get delayed. Additionally, 373 projects recorded cost overruns.
Gearing up for 2021
Considering the G20 meet to be hosted by India in 2022, new projects in Highways, Bridges, Roadways, Railways and Ports must be well planned. Equally important is to ensure smooth closure of projects. Therefore, the project life cycle must be closely monitored and funds allocated should be spent in an efficient manner.
There is no doubt the Budget should have adequate financial outlays for infrastructure development due to its association with greater growth while generating more employment and entrepreneurial opportunities. Since infrastructure development also boosts other industries and facilitates the ease of doing business, it fosters inclusive growth and helps in poverty alleviation too. In the light of the above, to boost a quicker economic turnaround, the Union Budget 2021 should ensure greater outlays for infrastructure development