NEW DELHI: India on Saturday reiterated plans to spend over Rs110 lakh crore on infrastructure over the next five years, but the plans may be dogged by a weak economy, private sector debt overhang and a slow implementation record.
The National Infrastructure Pipeline (NIP) plans to spend some Rs 111 lakh crore on nearly 7,000 projects across sectors including transport, communications, urban development, energy, and water. The plan is a grand vision involving roping in private and state-run players and many believe it is too ambitious in its scope.
India has a poor record of attracting private players into the costly, and long-gestation infrastructure space. The NIP, perhaps keeping this in mind, wants the private sector to be responsible for 22 per cent of projects by value. Costly and often delayed, private players have in the past been hesitant about investing in infrastructure projects. Disputes with the state over payback and land acquisition issues have more often than not dogged projects, as has inability to pay back lenders in time. IL&FS’ spectacular failure is a case in point.
Less-than-robust due diligence, and weaknesses in implementation have meant that many of these projects have turned into bad loans, adding to India’s huge pile of bad debt, expected to hit 12.5 per cent of GDP by March 2021. The Indian economy itself is reeling under the pandemic and is expected to contract for the first time since independence. The IMF has forecast a 4.5 per cent GDP contraction in 2020. Under these circumstances, both lenders and firms are wary of fresh investments in infrastructure.
While State governments are expected to implement about 39 per cent of the projects by value, state finances are also in dire straits—GST collections have halved and central funds devolution has been delayed. Most analysts believe their project implementation capacity has been hit hard. “The problem is that they are resorting to borrowings to bridge the gap today, which means a larger percentage of income in future years will go to pay back debt, leaving less for them to build infrastructure or commit themselves to other development work,” admitted officials in North Bloc’s department of economic affairs.
The Centre remains the only hope, something which most departments have realised. On Friday, finance minister Nirmala Sitharaman took a meeting of various departments and central PSUs to push them into spending their planned capex. However, with India’s poor record on time and cost over-runs of projects, finance ministry officials privately express doubts whether even the Centre’s share of the Rs 111 lakh crore project pipeline will be completed in time.