Realigning Roles Of Stakeholders Holds The Key In Making Mammoth Investment Of $1.5 Trn (Rs111 Lakh Cr) In Infrastructure By 2025 A Reality; India Needs Much More To Gear Up From Covid-led Contraction, Observe Economists
Can infra push ensure a multi-layered spill of positive impact on Indian economy? At a time when cost overrun of Rs4.1 lakh crore reported in 412 infra projects, can one expect India fulfilling its mammoth infrastructure creation at an estimated spending of $1.5 trillion (Rs111-trillion) during 2019-23 and attract investment? Prime Minister Narendra Modi-led NDA government aims at transforming India into a $5-trillion economy by 2025, for which next generation infrastructure and capability to lead Industry 4.0 are crucial at this juncture. Further, the disruptions caused by the Covid-19 epidemic on the Indian economy and society have highlighted the criticality of fundamentally rethinking many aspects of project execution. Key amongst these is the need to revisit and refocus on the creation of robust and resilient GenNext infrastructure, which will not only serve to improve the quality of our lives, but will also be a key factor in ensuring economic revival in the country, suggests KPMG, a Netherlands-based global network of professional firms providing audit, tax and advisory services.
Advising the Centre on infrastructure priority, Dr Sangita Reddy, President, Ficci, said, “greater impetus should be given to housing, infrastructure and auto sectors and support to state governments for purchase of buses for city transportation must also be considered. The Indian market is intrinsically strong and the option to raise money through international markets must be explored. Private sector, of course, stands with the Government in building self-reliant India through continuous innovation, better management and greater resilience.”
The GenNext infrastructure means physical infra plus technology support in forms of internet of things (IoT), automation and AI support, etc.
Where India stands Now?
Infrastructure sector includes power, bridges, dams, roads, and urban/rural infrastructure development, etc. India was ranked 44 out of 167 countries in World Bank’s Logistics Performance Index (LPI) 2018. India ranked second in the 2019 Agility Emerging Markets Logistics Index.
Clearing the bottlenecks that create obstacle in the way forward is very important now, observes a Hyderabad-based CEO.
In India, still several states (not Telangana) are suffering from power shortage and a number of industrial units run on captive power. As a result, the cost of operations is high affecting the Indian competitiveness in the global market. 136 airports organised by AAI and six under public-private partnerhip (PPP) mode. About 43 airports have been operationalised under scheme on opening up the unserved airports. India aims to operationalise 100 more airports by 2024.
“The Government through Atmanirbhar package has given significant impetus. There is a need to have enhanced focus on execution. In addition to this, the Government may consider further measures like putting more money in hands of the vulnerable and weaker sections of the society. Government could also consider a temporary reduction in GST rates especially in consumer durables segment. In fact, the festive season has already begun and some positive signaling by government might give a push to consumption activity. Specific announcements for hospitality, tourism, retail, and healthcare sector are eagerly awaited as well,” added Dr Reddy.
Given the pressing national imperative of getting the economy back on track, the government is focusing on various measures to provide a fillip to infrastructure creation as well as to attract domestic and foreign investments into this sector. The NIP task force has set an ambitious investment target of $1.5 trillion (Rs111 trillion) over fiscal years 2020-25 for the creation of reliable infrastructure with the objective of boosting economic growth.
“India, however, needs policy and regulatory reforms to support infrastructure investments across sectors such as healthcare, transport and logistics, digital infrastructure, energy, agriculture and education – both in urban and rural India. Critical areas of focus include ways to ensure the viability and sustainability of infrastructure projects in order to attract new investments; revisiting the roles that the Government, private sector and NGOs can play; and facilitating greater collaboration across sectors and institutions,” says Elias George, IGH partner and head, KPMG in India.
Investments in infrastructure have a multi-layered spill over impact on the economy, affecting overall growth as well as the prospects of businesses and individuals. Investments in these areas improve production capacity at the macro level, besides facilitating lower input costs for manufacturing, boosting aggregate demand through jobs and income generation, and reducing process friction, according to a latest report by KPMG.
In essence, robust infrastructure is a prerequisite to achieve the goal of becoming a $5 trillion economy by FY2025, as it offers a well-acknowledged economic and social multiplier effect in enabling economic prosperity. At a time when Covid-19 has ravaged the economy and livelihoods, the NIP offers the opportunity to create significant impacts.
In this context, the KPMG report examines India’s infrastructure needs driven by rapid urbanisation and the impact of Covid-19 on India’s Infrastructure Vision 2025 and its goals. It also highlights key steps for mitigating adverse impacts, in addition to identifying the building blocks of success.
Data pertaining to the last six years on implementation of central sector infrastructure projects shows that project completion has always been very tardy. Time and cost overruns are routine features in India particularly more acute in four sectors that account for a bulk of infrastructure projects in the country- roads and highways, power, railways, and petroleum.
As many as 412 infrastructure projects, each worth at least Rs 150 crore, suffered total cost overruns of over Rs 4.11 lakh crore, according to data from the Union Ministry of Statistics and Programme Implementation. The data further showed that as of July 1, 2020, out of 1,683 central sector infrastructure projects costing Rs 150 crore and above, 412 projects reported cost overruns while 471 have been delayed.
Only nine of the total projects are ahead of their schedule and 224 are on schedule. The report noted that 182 projects reported both time and cost overruns with respect to their original project implementation schedules.
The ministry in its statement said: “Total original cost of implementation of the 1,683 projects was Rs 20,65,336.20 crore and their anticipated completion cost likely to be Rs 24,77,167.67 crore, which reflects overall cost overruns of Rs 4,11,831.47 crore (19.94 per cent of original cost). The expenditure incurred on these projects till June 2020 is Rs 11,21,435.29 crore, which is 45.27 per cent of the anticipated cost of the projects.”
The ‘Flash Report On Central Sector Projects’ further observed that the number of delayed projects decreases to 418, if the delay is calculated on the basis of the latest schedule of completion. Further, for 979 projects, neither the year of commissioning nor the tentative gestation period has been reported, it said. The average time overrun in these delayed projects is 43.34 months, as per the report.
Various project implementing agencies attributed time overruns in project implementation to delays in land acquisition and environment clearances, lack of infrastructure support and linkages, delay in tie-ups for project financing, finalisation of detailed engineering, changes in scope and delays in tendering among other factors.
The report said that it has been observed that project agencies are not reporting revised cost estimates and commissioning schedules for many projects, which suggests that time or cost overrun figures are underreported.
Rural market not substitute for urban demand
Relying on rural economy is good, but it can substitute the urban demand. Agriculture sector is the least affected segment when all sections of the society were badly hit by Covid-19, said economists. The rural market can support economic recovery but can’t substitute for urban demand, observes India Ratings & Research. The ratings agency further stated that any two or three consecutive healthy harvests generally translate into a robust rural demand.
“So, the hope is that while the industrial and services sectors are still struggling to recover from the adverse impact of Covid-19, the agricultural sector could become an engine for economic recovery,” India Ratings & Research said in its statement.
A large part of the rural demand, notwithstanding the encouraging sales number of motorcycles and tractors in June 2020, comes from consumer non-durables. Further, automobiles sales showing revival in August.
“Since the share of agriculture in India's gross value added is about 17 per cent, Ind-Ra believes rural demand at best can extend support to consumption demand, but cannot be a substitute for urban demand. No wonder, among the use-based Index of Industrial Production classification data, the first category to record positive growth in the post lockdown period is consumer non-durables which grew 14 per cent YoY in June 2020,” the statement said.
The rating agency further elaborated that the Covid-19 led business disruptions during end-March-May 2020 were so severe for the production, supply or trade channels and the activities especially in sectors such as aviation, tourism, hotels and hospitality that FY21 GDP growth is expected to contract for the first time since FY80.
Although non-agricultural economic activities are slowly limping back, they are still much lower than pre-COVID-19 level. Ind-Ra expects 1QFY21 GDP growth to come in at negative 17.03 per cent. The current account in 1QFY21 is expected to record a surplus of around $18 billion.
Besides, Ind-Ra cited that agriculture has largely not been impacted either during or after the lockdown.
Ind-Ra expects the agricultural sector to grow at 3.5 per cent yoy in FY21. After several years, this sector has witnessed three consecutive good harvests - Rabi 2019, Kharif 2019 and Rabi 2020.
The rating agency in the statement said: “Moreover, the adequate pre-monsoon rainfall followed by the timely arrival of monsoons in most part of the country has led to an increase in the total Kharif sowing area in 2020 in comparison to the last year.”
Mega infra projects to transform Maoist-hit areas
The infrastructure development in remote, hill terrains and forest zones will transform the backward areas into economy revival and this will eliminate the extremism in India, said an economist. One of the worst-hit Maoist regions in the country, Gadchiroli district in Maharashtra is set to be transformed with five critical infrastructure projects and enhance connectivity with adjoining Chhattisgarh and Telangana states.
The Centre inaugurated the projects including a 855-metre major bridge across River Pranahita at a cost of Rs 168 crore and a 630-metre high-level bridge on River Indravati near Patagudam costing Rs 248 crore, both on Nizamabad-Jagdalpur Road (NH-63).
Besides, another 30-metre high-level bridge will come up near Lankachen on Bejurpalli-Aheri Road, the improvement of the same road (SF-275) between Watra-Moyabinpeta and the Garanji-Pustola Road.
“The all-weather road network in the remote Naxal-affected districts like Gadchiroli will improve the socio-economic development in the region. In the next two years or so, Gadchiroli will see allround transformation,” says BJP government.
Completion of these developmental road projects in the area would go a long way in mainstreaming of people living in the Left Wing extremism areas. With more such infra-projects coming up in these areas, the extremism is coming down gradually as the projects would spur industrial development, job creation and uplift the people of the area besides maintaining law and order.
Steeper contraction of Indian economy in FY21
As coronavirus cases continue to increase in India, restricting several economic activities, the World Bank (WB) projects a steeper contraction of the Indian economy for the current financial year, revised from the previous estimate of 3.2 per cent.
In its latest report ‘India Development Update’, the World Bank said that amid rapidly evolving conditions, projections made in May are likely to be revised as new information is incorporated, especially as the daily number of cases continues to increase resulting in several states and districts re-imposing lockdowns, and available high frequency indicators show that the economy has not yet reverted to baseline.
In May, the World Bank had projected the Indian economy to contract by 3.2 per cent in FY 2020-21, and predicted rebound slowly in the next fiscal. In its report released on Wednesday, the World Bank said that in the current, rapidly evolving context these projections are likely to be revised as new information is incorporated.
“In our revised projections, which would be available in October 2020, we would likely project a steeper contraction in the economy,” it said.
It noted that although a rebound is expected in FY 2021-22, it will take place "very slowly, reflecting the impact of the crisis not only on India's current growth but also on potential output, which is expected to return to trend only over the next several quarters".
Junaid Ahmad, World Bank Country Director in India, said: “While the government of India, with the support of the Reserve Bank of India, is continuing to take action to limit the impact of the Covid-19 pandemic, there is a recognition of both the uncertainty of the nature of the economic revival globally and the emergence of opportunities opened by the current crisis.”
He noted that the countries that invest in sectoral reforms -- infrastructure, labour and land, human capital -- and ensure that their national systems are connected to the global value chains, are more able to respond to uncertainties and are better placed to take advantage of any global shifts.
"Investing in these areas will give India the ability to navigate these uncertainties and be more competitive as the world emerges from the pandemic," Ahmad said.
The writer is a business journalist with 27 years of experience