The Union Budget is always awaited with great excitement by business leaders, policy researchers, economic experts and the general public. This year is no different, rather there is more excitement in anticipation of setting the growth path for the coming year and understanding the areas the government intends to focus on by higher budgetary allocation. The COVID-19 pandemic has had a significant impact on India’s economy and everyone is waiting for the government roadmap on various policy matters.
In 2021-22, the government focused on sectors such as healthcare, micro, small and medium enterprises (MSMEs) and infrastructure to revive growth after a two-month-long countrywide lockdown was imposed because of COVID-19. The government made efforts through Rs 20-lakh crore Aatmanirbhar package to reverse the slide in economic growth and bring it back on track. This effort has continued in the last two years.
The government has taken various initiatives like production-linked incentive (PLI) schemes for 13 key sectors with an expected outlay of Rs 1.97 lakh crore to support and strengthen manufacturing, and the PM Gati Shakti National Master Plan (NMP) for better coordination among ministries and faster pace of infrastructure development. These steps are very important and shall go a long way in bringing India back on the growth track.
Though upward inflation, lag in demand in few sectors, not-so-encouraging numbers on the new employment front and threat of Omicron globally paint a gloomy picture, the success of the vaccination drive — 150 crore doses have been administered so far — has injected confidence to deal with the impact of a third wave on business and economy. In the upcoming Budget, Finance Minister Nirmala Sitharaman will have to do a tough balancing act. While addressing the needs of the industry, she will also have to chart a path for sustainable growth for the next few years.
Infrastructure Sector – The Growth Driver
Infrastructure sector is a key driver for the Indian economy. It is responsible for propelling India’s overall development and enjoys government’s focus, for initiating policies that would ensure time-bound creation of world-class infrastructure in the country. In the last seven years, infrastructure in India has expanded at a rapid pace, bringing significant changes in the lives of citizens and boosting the local economy. While the infrastructure record of the Narendra Modi government is undisputed, the government will have to ensure Budget 2022 continues to provide impetus to such pace of infrastructure development.
Handholding and Funding
While there have been some signs of the economy bouncing back, it should be emphasised that with the country facing a third wave of COVID-19, the economic recovery remains fragile. Therefore, to ensure the recovery gains momentum, the upcoming Budget must frontload infrastructure investments.
This is particularly needed because states usually contribute almost 40 per cent of the total infrastructure investments in India. But due to pandemic-related disruptions, states are facing high fiscal deficits and are hit by liquidity issues. Therefore, the Centre needs to shoulder more responsibility in terms of raising funds to drive infrastructure investments and projects. These investments should be sanctioned on priority in the Budget because any delay will impact the possibility of a faster economic revival.
Industry associations have already recommended that public investments in agri-infrastructure be increased while healthcare expenditure as a percentage of GDP should be raised to 2 per cent for building hospitals and training institutions across India.
Given the Centre’s focus on Atmanirbhar Bharat mission, infrastructure development is vital for moving towards attainment of these goals. The Centre will be better placed in raising funding investments for the National Infrastructure Pipeline (NIP), which may include both public and private sector funds. Projects worth Rs 44 lakh crore are already being implemented as part of the Rs 111-lakh crore NIP, with the remaining amount slated to be spent by 2024-25.
Meanwhile, projects worth Rs 22 lakh crore (or 20 per cent of NIP) are under different stages of development. But proper and timely implementation is indispensable if ambitious objectives are to be met. The NIP framework currently comprises 39 per cent investment by Centre, 40 per cent by states and 21 per cent from the private sector. Considering the present market conditions, any shortfall from either partners may require the Centre to plug the deficit, for NIP goals to remain on track.
Significantly, under NIP, Rs 25 lakh crore has been allocated for the energy industry, Rs 20 lakh crore for highways, Rs 16 lakh crore for irrigation, rural agriculture and food processing, Rs 16 lakh crore each for Railways and mobility, respectively, and Rs 14 lakh crore for digital infrastructure.
Given the government’s thrust on infrastructure spending to revive the economy, the FY2023 budgetary outlay remains crucial to complete the its ambitious Bharatmala and allied programmes in a timely manner. Budget is expected to increase the capital outlay by 25-30 per cent. With an increase in budgetary allocation, the pace of asset monetisation is also expected to gain momentum.
Markets are also expecting the Budget to spell out a clear funding roadmap for the ambitious NIP and asset monetisation pipeline for NMP (National Monetisation Pipeline). Much of the infrastructure financing in the country is currently supported by the banking sector. The availability of long-term infrastructure financing remains a challenge, given the problems faced by commercial banks of asset-liability mismatch and high share of stressed assets.
Weak infrastructure imposes a huge cost on business, estimated at 3-4 per cent annually. In other words, an infrastructure thrust directly boosts GDP growth by around 3-4 per cent. That is because infrastructure investment has a huge multiplier effect. Finally, the infrastructure sector expects that Budget 2022-23 continues government’s focus on infrastructure. And that as suggested by the Rakesh Mohan Committee, it addresses issues of sustained spending on physical infrastructure, monetising income-earning infrastructure assets, developing robust and dynamic debt market for infrastructure funding and special incentives for use of modern technology. This will almost guarantee growth that the Finance Minister expects this year.
The author is an independent expert and commentator on infrastructure and economy. The views expressed in this article are those of the author and do not represent the stand of this publication.
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