Budget 2022: Rs 20 Lakh Crore In Infrastructure Funding In Sight. Now, Where Are The Projects?
For years, India debated the lack of adequate funding for infrastructure development in the country. Banks, scarred by the previous infrastructure cycle, didn't want to lend. The government didn't have room to spend.
Some of this may have now changed.
Funding is no longer a constraint for infrastructure development in the country and focus will now have to shift towards the availability of projects, said Vinayak Chatterjee, chairman for the Confederation of Indian Industry's committee on infrastructure. "One is gradually seen visibility of infrastructure funding of upto Rs 20 lakh crore per annum," Chatterjee told BloombergQuint in an interview.
As Chatterjee sees it, funding will be available from different sources:
Last year, the budget increased capex by 26%, taking it up to Rs 5.5 lakh crore. Chatterjee expects another 25% increase in capital expenditure this year, taking it up to Rs 7 lakh crore.
An additional Rs 2 lakh crore typically comes from PSUs and extra budgetary resources.
The newly created National Bank For Financing Infrastructure and Development will contribute another Rs 2-lakh-crore funding.
State capital expenditure budgets run from between Rs 5 lakh crore and Rs 7 lakh crore.
And finally, Rs 2 lakh crore can be generated from foreign and domestic capital.
The conversation is soon going to shift to project pipeline, availability of shovel-ready projects and some very strong stimulus to create tomorrow's projects. I see that as a potential bottleneck in the future as opposed to finance being the bottleneck.Vinayak Chatterjee, Chairman, CII National Committee On Infrastructure
According to Chatterjee, to absorb funding to the tune of Rs 20 lakh crore, you need a far larger portfolio of projects being planned. A typical infrastructure project has a lifecycle, from concept to completion, of about four years. "If you need to have shovel-ready projects of Rs 20 lakh crore, you will need to have a pipeline which is four times that. This is pure pipeline theory," he said.
While the government has put together a National Infrastructure Pipeline of Rs 111 lakh crore, these may not all be projects that are ready to go into implementation. "The question is what is the real pipeline? What is the stock of shovel-ready projects? To my mind it is not more than 20-30 lakh crore," Chatterjee said.
The government also needs to start thinking of the next generation of mega infrastructure projects. These could come in the form of high-speed transport, such as bullet trains, port, road and hydro-electric projects or infrastructure projects across states which have seen weak investment so far.
"My sincere advice would be to focus on the next generation of big projects and stalled / stuck projects. Once sanctioned, all effort should be made to see that these finish on time," Chatterjee added.
MS Unnikrishnan, former chief executive of Thermax and the head of the IIT Bombay-Monash Research Academy, shares that view. Urban infrastructure, according to him, can bring in the next set of large projects.
"Urbanisation is one area where we can consume capex," he said. "How many new cities are we creating? Why doesn't the government plan satellite cities, acquire the land. That's what has happened world over. If done in India, this can consume a couple of hundred billion dollars," he said.
Smoothing Out Implementation
While funding may become available and new projects may be conceptualised, implementation concerns are far from being addressed.
According to a report by the Ministry of Statistics And Programme Implementation, of the 1,873 central infrastructure projects monitored, 598 reported a delay in implementation compared to the original deadline. Cost overruns for these delayed projects was at 30.39% of the original cost.
"The recent report by the Ministry of Statistics said there are some Rs 4 lakh crore in projects stuck or not moving with a huge time and cost overrun. This is a significant problem to be solved," said Chatterjee.
Some steps have been taken to improve efficiency of government projects in recent months.
Gati Shakti, a platform to track infrastructure projects, has been launched. A national single window system has also been envisaged to speed-up clearances.
Public procurement rules have been changed to shift the focus away from L1 or the lowest bidder, which would help quality bidders get a leg-up.
Surety bonds have been introduced as a way to fill the gap created by inadequate availability of bank guarantees.
Across these announcements, there is a serious effort to ease execution related pressures, said Chatterjee.
The biggest implementation challenge—land acquisition, remains unaddressed.
"Land acquisition remains a big issue. Wherever the central and state governments are aligned in their thinking, things are moving fast," said Unnikrishnan. "Otherwise not so much."
A plug-and-play model is ideal, where the government gets permissions to acquire land and then hands it over to the private sector. "But the bureaucracy is very happy to put the monkey on the private sector by saying you acquire the land and you get the permissions," he said. "This has been strongly resisted by the private sector."
Watch the full interview below: