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By K R Sudhaman

Finance Minister Arun Jaitley said recently that India’s infrastructure gap is so huge that it will take at least two decades to bridge. At the same time this major bottleneck to development provided an opportunity for massive investment. Prime Minister Narendra Modi Government has therefore focused rightly on infrastructure development from day one it came to power in May 2014.

The push to infrastructure development has been evident and it is worth taking stock of the progress to put this major development in perspective during the last three years. Be it Railways, Roads, Ports, Shipping, Civil Aviation, Inland Waterways, Energy, including renewable, have made tremendous progress to aid connectivity, which had not made significant headway commensurate with the requirement during the 70 years after independence.

To build physical infrastructure, India also needs necessary skilled labour and digitization. It goes to the credit of Modi that he launched skill India, Digital India and Swachh India campaign along with Make in India initiative to ensure India became a global manufacturing hub by creating World class Infrastructure.

In the 12th five year plan that is ending 2017, the government had proposed to spend $ 1 trillion in infrastructure development, of which sizeable investment would come from private sector. India’s infrastructure is creaking and was coming in the way of pushing the economy to high growth path. The first major and significant shift in Modi’s strategy on infrastructure has therefore been to make it demand-driven rather than supply driven as has been the case so far. The supply driven strategy has hit even India’s agriculture. This is because the demand to fix poor rural infrastructure like roads, cold storage and irrigation facilities were never met.

Drawing lessons from the infra challenges faced during the last 15 years, Modi government has embarked upon modernization and the statistics speak for themselves. A 1.25 billion population, two thirds of whom are below 35 yrs, no other development strategy could be better than big ticket infrastructure development. India is already on a sweet spot with economic growth rebounding at around 7.5 per cent this financial year. This is happening at a time when other economies including China are slowing down and the global demand none too encouraging.

In that scenario, it is only appropriate that the government push infrastructure development, as any sound economist suggests, as this will create necessary platform to deliver when the demand picks up in the global economy. Also it makes sense to boost infrastructure development now when the global commodity prices are falling like oil, steel, cement, which are critical for infra sector. This will provide much needed advantage in cost. Besides the pension funds in advanced economies and other global investors are waiting for an opportunity to invest. No other country in the present juncture has that kind of appetite for such massive and long-term investment. The global investors are waiting to cash-in on this golden opportunity.

When emerging economies like China is faltering, India’s macro-economic parameters are strong making it conducive for an infra push. With inflation below five per cent, fiscal deficit at manageable level, interest rate falling farm sector bouncing back, the economic situation is ripe for jump-starting infra growth. The government has already made an ambitious plan to spend at least another $one trillion in the next 3-4 years. In the first quarter of this year, the capital expenditure has already increased by 18 per cent and number of stalled projects is increasingly getting speeded up. There are already signs of foreign investors showing a lot of interest in long-term investments in infra, according to Power Minister Piyush Goyal.

In July 2014, the government officially announced a push for foreign investment into the Indian Railways, part of a $128 billion upgrade of the country’s rail infrastructure that will include new tracks, 400 stations, a $15 bn bullet train service and a $12.5 bn dedicated freight corridor. More freight corridors have been announced in the last year’s rail budget improving rail and port connectivity in length and breadth of the country. Already the work in Mumbai-Delhi and Ludhiana-Kolkata freight corridors are going on at brisk pace. Three more freight corridors, Kolkata-Vijayawada, Delhi-Chennai and Kolkata-Mumbai have been taken up.

A $6 billion National Infrastructure and Investment Fund set up by Modi Government will help in confidence building among foreign investors in the infrastructure sector. The NIIF is a Fund-of-Funds platform, in which the government holds a 49 per cent stake. Cash-rich public sector undertakings and foreign investors will hold the controlling stake, with each of the funds that the NIIF seeds run by external, professional investment managers.

One of the major problems in the infrastructure funding has been that the government did away with development financial institutions in the 1990s post economic liberalization. But it failed to create alternative sources of long-term funding like vibrant corporate bond market and infrastructure funds. This forced commercial banks to lend hugely into infrastructure sector. Commercial banks by nature get short- to –medium term deposits and hence can lend only short-to-medium term. Typically infrastructure projects have long gestation period and slow rate of return, and hence it needs long term funds with lower interests. This is generally provided by pension and insurance funds, corporate bonds and infra funds. Since these were not there in the country, commercial banks were forced to lend resulting in asset-liability mismatch, laying the foundation for unmanageable Non performing assets.

India, which is in the second wave of infrastructure development since Modi came to power in 2014, required Rs 43 lakh crore over the next five years, according to rating agency CRISIL. This translates into roughly Rs 8.6 lakh crore annually. About 70 per cent of this Rs 43 lakh crore would be required in just three sectors, power, transport and urban infrastructure. With private capital that invested 10 to 15 years ago are looking to exit, there are now more opportunities foreign investors to step in.

There is also mounting evidence that Modi’s enthusiastic pursuit of government to government engagement with countries such as Japan, Korea, the US and Australia is paying off. Japanese companies are looking to invest about $ 5 billion into a dedicated freight rail corridor; Canada’s $ 268 billion pension group has already invested $ 2 billion, and the UAE’s Abu Dhabi Investment Authority is equally interested, according to Goyal.

Modi, during the last three years, has stressed on the need to leverage co-operative & competitive federalism to achieve all round growth. For a long time, Big Brother relationship existed between the Centre and States. A ‘One Size Fits All’ approach had been used for years, not taking into account the heterogeneity of different states and their local requirements. It is precisely for this reason NITI Aayog was formed to further empower and strengthen the states.

The Indian power sector itself has an investment potential of $ 250 billion in the next 4-5 years, providing immense opportunities in power generation, distribution, transmission and equipment. The Indian construction equipment industry is reviving after a gap of four years and is expected to grow to US$ 5 billion by 2019-20 from current size of US$ 2.8 billion. This meant that India is witnessing significant interest from international investors in the infrastructure space. Many Spanish companies are keen on collaborating with India on infrastructure, high speed trains, renewable energy and developing smart cities. skyTran Inc., a NASA technology partner specialising in developing pod car systems for urban transport, plans to build a one-kilometre pilot track in India at its own cost as per the requirement of the government, which has shortlisted skyTran as one of the three companies chosen to build pod cars on trial basis.

Global private equity firms, equity hedge funds, global non-banking companies, sovereign wealth funds and global pension funds are queuing up in India to invest billions of dollars in Indian infrastructure sector. Industrial corridors, Delhi-Mumbai, Ludhiana-Kolkata, Kolkata-Vishakpatnam-Vijayawada Chennai-Tuticorin, Chennai-Bengaluru, Bengaluru-Mumbai are being built with Japanese, World Bank, ADB and British assistance. Along with this development of 100 smart cities are bound create huge investments in infrastructure including telecom sector.

The Central Electricity Authority (CEA) expects investment in India’s power transmission sector to reach Rs 2.6 lakh crore ($ 38.85 billion) during the 13th plan (2017-22), and to enhance the transmission capacity of the inter-regional links by 45,700 megawatt (MW).

The monetisation of 75 publicly funded highway projects of value Rs 35,600 crore (US$ 5.32 billion) via toll-operate-transfer (TOT) mode will fetch adequate funds to finance road construction of 2,700 km length of roads.

The Urban Development ministry has approved investment of Rs 2,863 crore ($ 433 million) in six states under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, for improving basic urban infrastructure over FY 2017-20.

Airports Authority of India (AAI) plans to increase its capital expenditure for 2017-18 by 25 per cent to Rs 2,500 crore ($ 0.37 billion), primarily to expand capacity at 12 airports to accommodate increase air traffic, as per the Chairman of AAI. AAI plans to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, car parks and other facilities, and thereby boost its non-aeronautical revenues.

The Government of India has earmarked Rs 50,000 crore ($ 7.34 billion) to develop 100 smart cities across the country. The Government has announced highway projects worth US$ 93 billion, which include government flagship National Highways Building Project (NHDP) with total investment of US$ 45 billion over next three years.

All these statistics indicate the push given to infrastructure in the budget, which is the culmination of the efforts made by Modi during the last three years. That included creation of necessary legal framework, transparency in decision making and speedy clearance of projects. Investments into the sector was virtually at the brink of collapsed due to policy paralysis when Modi government assumed office in 2014. (IPA Service)

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