How Will Infrastructure Spending Drive The Economy Forward In India?

The month of February saw the full rage of business sentiments in the country grappling with a slowdown. On February 11, Finance Minister Nirmala Sitharaman cited seven economic indicators, like a booming stock market, increased FDI and optimism among purchasing managers, to say that “green shoots” of a turn around were visible.

Skepticism abounds over whether the nearly $3 trillion Indian economy is growing fast enough to reach Prime Minister Narendra Modi’s GDP target of $5 trillion by 2024-2025.But signs suggest that economic activity may have bottomed out, and foreign institutional investors are placing big bets on India’s infrastructure sector, according to participants in a panel discussion at the recent Wharton India Economic Forum held in Mumbai.

The World Bank Global Economic Outlook for June 2020 forecasts that in the coming months, 90 per cent of the world’s countries will go into recession. Much earlier than Covid-19, the Indian economy faced headwinds and is currently looking at its fourth recession since independence, although the reasons are somewhat different from the previous ones.

Finance minister Nirmala Sitharaman on 11 September said that public spending on infrastructure will be one of the key factors that will revive economic growth that has witnessed a sharp contraction due to the outbreak of covid-19. Under NIP, the government has projected approximately 111 trillion investments in 2020-25 to build social and economic infrastructure to fuel economic growth. As regards to project financing, the National Infrastructure Investment Fund (NIIF) is one of the ways to fund infrastructure projects, she said.

Home to nearly a fifth of the world’s population, and with almost 65 per cent below the age of 35, it is imperative that we use the next few years to meaningfully employ this workforce. Investment in infrastructure could prove to be an important way to achieve this objective. TheUSD1.5 trillion (INR111 trillion) National Infrastructure Pipeline (NIP) built on Infrastructure Vision 2025 was announced in the pre-covid-19 world in December 2019. the success of the NIP will be dependent on three critical factors – human capital, innovative funding models and greater technological integration.

The finance minister’s comment comes at a time when India’s Gross Domestic Product(GDP) has contracted 23.9% on-year in the April-June quarter due to a stringent lockdown enforced across the country. Aided by easing of lockdown restrictions, India is now witnessing a ‘sharp V-shaped recovery’, the finance ministry said in the first week of September 2020.

Over the short to medium term, putting in place a strong framework for bankable projects, investment monitoring from commitment to actual completion and achieving steady-state operations for infrastructure projects will be critical. Investor and private sector confidence can be revived if the certainty and reliability of fund-flow commitments are brought back. There are, however, some challenges in the way ahead that must be overcome to achieve this acceleration in the economy.

Healthcare needs to remain the top priority with features such as an expanded primary healthcare network, multi-functional infrastructure, national health protection coverage and adoption of digital tech. Greater focus should be given on achieving the ideal state of mobility with convenient, affordable and enhanced last-mile connectivity through public transport.

Strengthening rural infrastructure should promote growth of agro-based industries, better access to markets for farmers and creation of job opportunities for the rural population.

This unprecedented Covid-19 crisis has also presented us with an opportunity to revisit how we conceive, design, regulate, build and operate physical infrastructure in our country. The multiplier effects have been long well established. The NIP presented a sound blueprint; building future ready infrastructure holds the key to reviving the economy and getting back on the development agenda with post-COVID re-prioritization and effective implementation.