The infrastructure push

News: The Gati Shakti panel, led by the cabinet secretary, has asked the DPIIT (the Department for Promotion of Industry and Internal Trade) to identify high-impact projects that can be included in the Budget.

Projects related to rail, roads, and airports may be included. The department has also been asked to make sure that projects are completed on time. Besides, it is expected to review the infrastructure gap for long-term needs.

Since, Covid-related uncertainty would continue to affect output and growth, it is encouraging to see that the government is pushing infrastructure projects.

Why Infrastructure investments/capital expenditure push is important?

Firstly, Infrastructure investment with better planning and focus would yield higher returns and make Indian businesses more efficient.

Secondly, private investment, which has been weak for quite some time, is unlikely to pick up. For instance, the Reserve Bank of India’s recent “Report on Trend and Progress of Banking in India” noted, non-financial companies in the private sector have been net savers for the past three years. They are unlikely to make large investments in the near term because of existing capacity and weak demand.

Thirdly, it would not only help sustain the recovery, but also make it more durable by crowding in private investment over time.

What are the concerns that need to be addressed by the government?

First, though the government had increased the allocation for capital expenditure by over 30 percent in the current fiscal year, the actual spending has been lagging.

Second, the government has increased expenditure in other areas. It will be critical to ensure that it doesn’t affect capital expenditure. Since the government has to progressively reduce the fiscal deficit.

Finally, the government must make sure projects are not delayed. The latest report of the Infrastructure and Project Monitoring Division showed that delays in projects costing over Rs 150 crores had resulted in a cost overrun of more than Rs 4 trillion.

The Gati Shakti platform, hopefully, would be able to minimize delays. Cost overruns and delays will undermine the benefits of these projects and affect India’s growth over the medium term.

Source: This post is based on the article “The infrastructure push” published in Business Standard on 6^th Jan 2022.