Context: Report of the task force on National Infrastructure Pipeline for 2019-2025.
More in news:
- India plans to invest about ₹102 lakh crore in the infrastructure sector in the next five years to achieve the GDP target of $5 trillion by 2024-25
- Infrastructure sector is a key driver for the Indian economy.
- The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country.
- Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
- In 2018, India ranked 44th out of 167 countries in World Bank’s Logistics Performance Index (LPI) 2018.
- Market Size:
- Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to March 2019 stood at US$ 25.05 billion, according to the Department of Industrial Policy and Promotion (DIPP).
- The logistics sector in India is growing at a CAGR of 10.5 per cent annually and is expected to reach US$ 215 billion in 2020.
- According to India Brand Equity Foundation (IBEF), India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country.
- India is witnessing significant interest from international investors in the infrastructure space. Some key investments in the sector are listed below.
- In 2018, infrastructure sector in India witnessed private equity and venture capital investments worth US$ 1.97 billion.
- In June 2018, the Asian Infrastructure Investment Bank (AIIB) has announced US$ 200 million investment into the National Investment & Infrastructure Fund (NIIF).
- Indian infrastructure sector witnessed 91 M&A deals worth US$ 5.4 billion in 2017
National Infrastructure Pipeline for 2019-2025:
- Report of the Task Force on National Infrastructure Pipeline has been submitted by Department of Economic Affairs, Ministry of Finance, Government of India.
- Finance Minister Nirmala Sitharaman unveiled a ₹102 lakh crore national infrastructure pipeline, in accordance with the Narendra Modi government’s vision to make India a $5 trillion economy by 2024-25.
- The finance ministry had set up a task force headed by Economic Affairs Secretary to prepare a road map for the “national infrastructure pipeline” from 2019-20 to 2024-25 under the ₹100 lakh crore infra plan.
- Aim: To achieve the target of $5 trillion economy by 2025, and meet the aspirations of the changing demographic profile, creating new and upgrading existing infrastructure is an imperative.
- Vision: Infrastructure services that raise the quality of life and ease of living in India to global standards.
- Strategic goals:
- Provide a positive and enabling environment for significant private investment in infrastructure at all three levels of government.
- Design, deliver and maintain public infrastructure projects to meet efficiency, equity and inclusiveness goals.
- Design, construct and maintain public infrastructure to meet disaster resilience goals.
- Create a fast track institutional, regulatory and implementation framework for Infrastructure.
- Benchmark infrastructure performance to global best practices and standards.
- Leverage technology to enhance service standard, efficiency and safety.
Global trends in infrastructure spending:
- As per the Global Infrastructure Outlook 2017 published by Oxford Economics, the estimated global infrastructure investment requirement is $94 trillion during the period 2016 and 2040.
- Of this, around half is required in Asia alone (primarily China, India and Japan), with roads and electricity sub-sectors constituting around 67% of these investment needs, followed by the telecommunication, railways and water sub-sectors.
Importance of infrastructure sector given the transformation in India’s demographics:
- India’s GDP growth is expected to gradually swing upwards over the next five years starting from fiscal 2020 following on the clean-up of financial sector balance sheets, reversing the deleveraging phase with corporates starting to leverage for funding capex, leading to growth and payoff from policies and reforms such as the Goods and Services Tax and the Insolvency and Bankruptcy Code 2016.
- In order to improve India’s global competitiveness, creating new and upgrading existing infrastructure will be critical along with introducing a slew of supply side reforms. Infrastructure development is labour-intensive, leading to increase in employment opportunities and thus, fuelling domestic demand. All of this together can aid in initiating a virtuous cycle of higher investments, growth and employment generation in the economy.
Historical trend in infrastructure investment in India:
- Infrastructure investment in India during the fiscal 2008 to 2017 was estimated at about Rs 60 lakh crore ($1.1 trillion at average exchange rates of respective years).
- Infrastructure investment in the Eleventh Five-Year Plan (fiscals 2008 to 2012) was Rs 24 lakh crore and in the Twelfth Five-Year Plan (fiscals 2013 to 2017) was Rs 36 lakh crore at current prices.
- However, infrastructure as a proportion of GDP fell to about 5.8% during the Twelfth Five-Year Plan from about 7% during the Eleventh.
- As per estimates, India’s infrastructure investment for fiscals 2018 and 2019 are about Rs 10.2 lakh crore and about Rs 10 lakh crore, respectively.
- During this period, infrastructure investment was predominantly made by the public sector (Centre and state governments, with a share of about 65%), while the share of private sector was about 35%.
Key benefits of the NIP:
- Economy: Well-planned NIP will enable more infra projects, grow businesses, create jobs, improve ease of living, and provide equitable access to infrastructure for all, making growth more inclusive
- Government: Well-developed infrastructure enhances level of economic activity, creates additional fiscal space by improving revenue base of the government, and ensures quality of expenditure focused in productive areas
- Developers: Provides better view of project supply, provides time to be better prepared for project bidding, reduces aggressive bids/ failure in project delivery, ensures enhanced access to sources of finance as result of increased investor confidence
- Banks/ financial institutions (FIs)/ investors: Builds investor confidence as identified projects are likely to be better prepared, exposures less likely to suffer stress given active project monitoring, thereby less likelihood of NPAs
NIP sector-wise summary:
- The total project capital expenditure in infrastructure sectors in India during the fiscals 2020 to 2025 is projected at Rs 102 lakh crore.
- The sector-wise annual projected capital expenditure is detailed below. During fiscals 2020 to 2025, sectors such as energy (24%), urban (16%), railways (13%) and roads (19%) accounted for ~70% of the projected infrastructure investments in India.
Reviving the investment cycle requires more than just ambitious targets. To achieve the ambitious targets government needs a careful thought about the road-map. It is envisaged that the central and state governments will account for 39 per cent each of the projected investment, with the private sector expected to make up the balance. Achieving such ambitious targets require strong will power and systematic roadmap with each sector contributing to the utmost level.