India Pushes Forward With Infrastructure Investment

Published: January 4, 2020

The Finance Minister has unveiled plans to invest INR 102 lakh crore on infrastructure projects by 2024-25. This, according to the government, is a much-required push for India to achieve its 5-trillion dollar economy goals by the same year.

Why is this investment needed?

Other than achieving our 5-trillion dollar economy goals, this investment is also the need of the hour. Recent data released by the central government shows that the eight core infrastructure industries have shrunk by 1.5% in November, This is the fourth consecutive month of negative growth. Moreover, the country’s coal, crude oil, natural gas, steel and electricity industries have seen a withering.

How will the investment be executed?

A task force, headed by the secretary of Economic Affairs, has taken up the mammoth task of executing this project across 18 states, under the National Infrastructure Pipeline. The task force has stated that the remaining states are yet to submit their pipelines. The investments will be phased for over 6 years. The investment will be shared at a ratio of 39:39:22 between the center, the states and, the private sector.

What are the challenges ahead?

As the economic growth of the country has suffered, there is a chance that both the center and the states will miss their fiscal deficit. This may lead to increasing dependency on the private sector. But even the corporate sector, in its current condition, may not be willing to invest much.
One-fourth of the budget i.e. 24 lakh crore has been earmarked for the power sector. But currently, existing power plants are functioning at a less than peak capacity. Which means there isn’t an actual demand for more power. 31% of the projected investment is still at a conceptual stage and another 8% is yet to be earmarked. This leaves a lot of the infrastructure pipeline on shaky grounds.

Way Forward

With the economy being the way it is today, this is a major move that will help. However, the government must focus on sectors that will lead to both long term and short term revenue. Projects that help rural infrastructure, or agriculture, not only come with a broader benefit, but they will also lead to immediate revenue generation. Long-term schemes such as better highways and road networks, that will generate revenue for years through taxes and tolls, should be given a higher priority. Hopefully, India will still be on track towards the 5-trillion dollar economy goal by 2024-25.

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