Looking the Rs 102 lakh crore infra gift horse in the mouth

It was perhaps supposed to be a New Year gift for the economy. On December 31, Finance Minister Nirmala Sitharaman announced a massive infrastructure programme. It sounded great – Rs 102 lakh crore worth of projects (with another Rs 3 lakh crore set to come) to be implemented over six years.

With growing criticism about the government’s lack of an effective response to the economic slowdown, the report of the Task Force on a National Infrastructure Pipeline was timely. It did fulfil the prime minister’s Independence Day promise of Rs 100 lakh crore worth of infrastructure projects, though he had spoken of a five-year horizon. It covers both physical and social infrastructure to supposedly foster ease of doing business as well as ease of living.

This should certainly help bridge the crippling infrastructure deficit that India suffers from. The report itself notes that India ranks 70 out of 140 countries in terms of overall infrastructure quality. An IDFC Institute report, Infrastructure Priorities for Job Creation in India, had calculated the estimated increase in productivity and savings as well as employment across sectors if the quantity and quality of infrastructure improved. Importantly, it will give a boost to specific industries like capital goods, cement, steel and electricity (the last three have posted negative growth for three straight months).

And though one shouldn’t, perhaps this gift horse does need to be looked in the mouth.

The prime minister’s speech had given the impression that new projects are to be announced. However, the report shows that over 60 per cent of the projects are either those already under implementation (42 per cent) or those under development, which means the detailed project reports (DPR) have been completed and construction is yet to start (19 per cent).

At one level, this is positive. It shows that these are not pie-in-the-sky projections but realistic ones. At another level, one cannot help wondering what extra boost are these existing projects going to give to the slowing economy that they haven’t already. Unless their inclusion in the report indicates that they are going to get focussed attention. But there is no clarity on that. The break up of expenditure over the six-year period also shows that of the Rs 101 lakh crores, an estimated Rs 13.6 lakh crore worth of projects are slated for the current financial year. Given that this is the last quarter of the fiscal year, how much of this expenditure has already been made?

Projects still in the conceptual stage account for 31 per cent of the total portfolio. In some sectors, this is the largest chunk – around 80 per cent in agriculture and renewable energy and in the 50-55 per cent range in ports, airports and irrigation. If the report was focussed on new projects, then this would be natural. But, on the flip side, this can prove to be a wild card – there is no certainty that these may even come to the DPR stage, let alone transition to full-scale implementation. What, then, happens to the projections if these do not make the cut and are not replaced by other projects in more advanced stages?

There’s also the question of money. The report says that the central and state governments will each account for 39 per cent of the investment and the private sector 22 per cent. But both central and state finances are not in the best of health. States, especially, are prioritising revenue expenditure over capital expenditure. The Reserve Bank of India’s annual study of state budgets pointed out that states are sticking to their deficit targets by “sharp retrenchment in expenditure, with potentially adverse implications for the pace and quality of economic development.” It is not clear if the tide is going to turn in a positive direction.

At her press conference, Sitharaman said she expected the private sector to increase its share to around 30 per cent by 2025. But there is little to indicate that the private sector is in a position to contribute significantly. Even if it has the resources, policy/regulatory issues in several sectors actively discourage private sector interest.

And then there are operational/implementation issues. Delays are inevitable in government projects. The Department of Programme Implementation’s quarterly overview of projects costing Rs 150 crore and above showed that as of September 2019, 563 projects had time overruns ranging from one month to 27 years, with a cost overrun of 27.52 per cent over the original estimated cost. This is happening despite regular and close monitoring by the Prime Minister’s Office.

Acknowledging this, the report sets out a detailed project monitoring framework. It also highlights key reforms that are necessary to take care of the financing issues – strengthening the municipal bond market, revitalising asset monetisation of projects and enabling user charges to be levied. But these have been on the reforms agenda for years, if not decades, with limited success. Can they now be done overnight?

If the economy is to get the benefit of this project agenda, central and state governments as well as the private sector have to work in close coordination, identifying problem areas and addressing them. Otherwise, this list will be nothing more than a wishlist.

(The writer is a senior journalist and author. She tweets at @soorpanakha)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.