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Cynics will dismiss it as mere grandstanding. The faithful will see it as ambitious.
Power Minister Piyush Goyal plans to pump close to $250 billion into key sectors such as power generation, transmission, distribution, renewable energy and coal production to achieve 24x7 power supply over five years.
That amount alone is more than 10% of the country’s GDP.
Not to be left far behind, Nitin Gadkari, Minister of Transport, is aiming for investments worth over Rs 5 lakh crore in highways alone. He proposes to invest another Rs 5 lakh crore in the shipping sector. This Rs 10 Lakh crore translates to roughly $160 billion or 8% of GDP.
Put together, the two ministers have publicly announced investment intentions worth 18% of GDP over five years or 3.6% of GDP each year in just these two sectors.
Just to put these numbers in perspective, total FDI in India from April 2000 to March 2015, over a 15-year period, has been $368 billion. It’s good to be ambitious. But the mind boggles at the sheer size of the numbers that are being thrown around.
To be fair, the 12th plan, although we've officially done away with planning, had envisaged an investment of roughly $ 300 billion in the power sector and $150 billion in roads. Of this, $116 billion in power and $50 billion in roads is expected from the private sector. The centre and states are likely to fund the balance.
Can we actually pull off such huge investments in the current environment?
Ask any minister and the answer one gets confounds me.
Money is not a problem they say. We’ll enter into PPPs (public private partnerships). We can raise money from abroad.
The confidence is misplaced. PPPs in India are in a shambles. No one’s even heard of what happened to the 3P Institute. This institute was announced in the NDA’s first budget with a corpus of Rs 500 crore, which is probably more than the combined budget of all the top think tanks in Delhi. This was supposed to rework the PPP framework to ensure its smooth functioning. But there’s an eerie silence. The PPP framework is still being worked on.
Private investment levels are also unlikely to rise in the near term. With their debt levels way off the charts and with banks – who have already burnt their fingers, especially in the infra sector – unlikely to turn on the liquidity tap, the chances of these figures actually materialising seem minuscule.
Can the money be raised from foreign investors? Probably.
Are foreign investors like Japanese pension funds and sovereign wealth funds of countries like Norway scouting for investment opportunities? Yes. Does India offer higher returns and more investment opportunities than other countries? An emphatic yes.
But is there a credible plan in place to attract this capital? No. And on top of that we seem to be doing everything possible to repel it. The MAT issue is still not resolved. Cairn’s transfer pricing issue is still up in the air.
Ideally, the government should have in its first year worked out the nuts and bolts of creating a well-functioning bond market. This is logical first step to fund these massive infrastructure projects. Yet we see the government cowing to pressure from the RBI and postponing it.
It would behoove the government to put in place a credible plan. Work out the nuts-and-bolts and bridge the chasm between reality and hyperbolic rhetoric.
(Ishan Bakshi is an economic affairs correspondent for Business Standard)
