Infrastructure in cloud cuckoo land

Last week, the Narendra Modi government unveiled an infrastructure investment plan for six years, which was even more ambitious than its interim version released on December 31, 2019. That interim report, prepared by a task force headed by the economic affairs secretary in the Union finance ministry, had talked about a National Infrastructure Pipeline of Rs 102 trillion worth of projects to be implemented by March 2025. Four months later, the same task force raised the value of infrastructure projects to be implemented during the same period by about 9 per cent to Rs 111 trillion.

Nurturing ambition and setting high targets are important attributes of planning and governance. But when planners in the government lose touch with reality, such ambitions become unrealistic as well as unachievable, and the targets become a burden on the whole system instead of their becoming something to aspire for. The National Infrastructure Pipeline, finalised on April 30, appears doomed to such a fate.

The target of Rs 102 trillion worth of infrastructure projects in a period of six years was in itself an ambitious task. But some allowance could be made for such a target, set at the end of December 2019, when the government could still strive for reviving India’s economic growth after a steady deceleration for as many as seven successive quarters.

Infrastructure investments also have a strong multiplier effect on growth. Going by the National Infrastructure Pipeline, an annual average infrastructure investment of over Rs 17 trillion for a period of six years would have certainly boosted India’s economic growth. Financing such investments would have been a big challenge. However, if financing needs could be met, such planning still had some rationale.

But what was the rationale of retaining broadly the same report, finalised in December, and releasing it as a final plan in April, and that too after the Covid-19 outbreak had upset all economic assumptions? Worse, the only big change was to increase the amount to be invested in these infrastructure projects — from Rs 102 trillion to Rs 111 trillion. With Covid-19 and the national lockdown for over 40 days having dealt a devastating blow to the economy, did the planners have a magic wand for mobilising hugely increased investments for the infrastructure sector for the next five years? Where would the Centre, the states and the private sector find the resources to invest in those infrastructure projects?

The report of the National Infrastructure Pipeline notes that annual infrastructure investments in the last few years have stayed within a range of Rs 8-10 trillion. In 2017-18, they rose to Rs 10.2 trillion and marginally dipped to Rs 10 trillion in the following year. In 2018-19, the share of central investments in the infrastructure sector was 38 per cent, while the states and the private sector accounted for 37 per cent and 25 per cent, respectively.

Yet, the task force’s revised break-up of investments by the Centre, the states and the private sector raises many questions. The interim report of December 2019 had pegged the share of the Centre and the states in such investments at 39 per cent each, with the remaining 22 per cent coming from the private sector. But the April report of the task force changes the investment composition. The Centre’s share in such investments is retained at 39 per cent and the private sector’s share is reduced to 21 per cent. But the states’ share is raised to 40 per cent.

What gave the task force the confidence that the states will have such abundance of funds in the coming few years that they could allocate more for infrastructure, compared to the Centre or the private sector? From all available indications, the finances of the states after Covid-19 are in far worse shape than those of the Centre. Yet, the 9 per cent increase in the infrastructure outlay and the change in the share of these investments have essentially required the states to fork out Rs 4.62 trillion more in the coming years, compared to only Rs 3.5 trillion by the Centre and Rs 0.86 trillion by the private sector.

The manner in which the task force allocated the projected infrastructure investments over the next few years is equally puzzling. The average annual investment according to the plan should be Rs 18.5 trillion over a period of six years, beginning from 2019-20. Accordingly, the investments in 2019-20 were to be about Rs 14.42 trillion, going up steeply to Rs 21 trillion in 2020-21, Rs 21.32 trillion in 2021-22 and so on.

A reality check will reveal serious weaknesses in these projections. For 2019-20, the target of Rs 14.42 trillion was still within a striking range. The states had budgeted for a total capital outlay of about Rs 5.7 trillion, against the task force’s infrastructure investment target of Rs 5.77 trillion. But remember that less than half of the total capital outlay is normally channelled to the infrastructure sector. The Centre’s infrastructure investments were estimated at Rs 3.77 trillion, compared to the task force’s projection of Rs 5.62 trillion. No estimates of the private sector’s investments in the infrastructure sector are officially available. But the extent of the shortfall even for the first year of the plan is quite large and this happened in a year which was yet to be impacted by Covid-19.

Now, consider the infrastructure investment projections for 2020-21 and 2021-22, and the impracticality of setting such targets will become obvious. The states will have to ramp up their investments in infrastructure to over Rs 8 trillion in 2020-21 and the Centre too will have to more than double its investments over what it had spent in 2019-20. The private sector also will have to raise them to over Rs 4.5 trillion in the current year.

In a year, when the Indian economy will be striving hard to recover from the adverse impact of Covid-19 and the lockdown, the focus on infrastructure investments should be more realistic and be better informed by feedback from the private sector and the states on what all they can rustle up for such outlays in the current and coming years.

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