Infrastructure push

The ambition will need policy support

The Union government has increased capital expenditure significantly in recent years. The expenditure has partly been driven by the need to support the economy in the aftermath of the pandemic-induced disruption. The increased capital expenditure is also aimed at plugging the gap in India’s infrastructure and logistics sector, which increases the cost of doing business and affects the overall competitiveness of Indian firms. Taking the theme forward, Prime Minister Narendra Modi unveiled the blueprint for India’s maritime economy at the Global Maritime India Summit on Tuesday. He also inaugurated projects worth over Rs 23,000 crore in the maritime sector. The new vision for the sector envisages investment worth Rs 75-80 trillion over the next 25 years. The target is to quadruple the port capacity by 2047, along with attaining carbon neutrality at all big ports. Further, the aim is to develop 25 cruise terminals, and also make India a major player in ship recycling. Increasing investment in this area also underlines India’s commitment to the proposed India-Middle East-Europe Economic Corridor.

While the vision is ambitious, the need for developing maritime capacity in the coming years to facilitate trade and increase India’s profile in the region should not be underestimated. There has, in fact, been significant improvement in recent years. As the Prime Minister noted, the capacity at major ports has doubled in recent years, while the turnaround time for big vessels has reduced to less than 24 hours, compared with 42 hours in 2014. The SagarMala project is also addressing various aspects in this context. However, India’s infrastructure ambitions are not limited to developing maritime capacity. Large sums are also being invested in areas such as roads and railways. According to CRISIL, an analytics firm, infrastructure spending is expected to double over the next seven years, which would mean expenditure worth about Rs 143 trillion. This would include spending over Rs 37 trillion on roads and over Rs 25 trillion on railways. In terms of funding, the projections expect the Union government to do most of the heavy lifting. According to estimates, about half of the infrastructure spending in the current year is expected to be funded by the Centre, while the remaining half will come from states and the private sector. A significant increase in non-fossil-fuel investment is also expected, which will help contain carbon emissions.

The pace of infrastructure development and the level of spending in the coming years, to be sure, will depend on a variety of factors. Given the long gestation period and low returns in various areas, the private sector is often reluctant to invest. The government, thus, will have to continue to lead. However, the need for faster fiscal consolidation and increasing demands on the budget will pose challenges for sustained higher allocation. Capacity constraints in the implementation of large projects, which often result in cost and time overruns, will also need to be addressed. Given the fiscal constraints, it will be important to encourage the private sector wherever possible. While the private sector is investing in areas such as green energy, in order to expand the scope of its investment, it will be vital to have policy stability. Provision of viability-gap funding in relevant areas will also help. The overall macroeconomic and price stability, too, will be critical. Since most infrastructure investment is debt-financed, low and stable interest rates will encourage the private sector.