When Finance Minister Nirmala Sitharaman presents her fourth budget on February 1 amid a third wave of COVID-19 sweeping India, there will be expectations galore of this penultimate full budget of the Prime Minister’s second term. Narendra Modi. There will be populist temptations, imperatives for reform, necessities for growth, pressures for equity in distribution and budgetary constraints.
But despite the chaos and confusion of the ‘new normal’ brought about by the pandemic, there is a critical need for faster and more inclusive growth coupled with a vastly improved ‘ease of living’ for both rural and urban citizens. and “ease of doing business” for growth engines.
As such, the bigger picture must remain focused on becoming a $ 5,000 billion economy by fiscal 2025 out of the current $ 3.2 trillion. The goal is bold, the roadblocks gigantic, but not reaching the top is not an option.
The big question is: which route to take to reach the top?
Quite naturally, multiple efforts from various directions are required, but none are more important than massive investment in infrastructure as well as critical structural reforms in planning, execution and delivery.
And here, the infrastructure must encompass the physical, the social and the digital.
Why Infra Push is needed
One may wonder why the infrastructure. First, for India to achieve double-digit year-over-year growth to allow the economy to catapult to $ 5,000 billion by 2025 and gallop to $ 10,000 billion by 2035, eliminating the infrastructure deficit is the most critical to achieve the goal.
Second, the blow to the body from the pandemic has damaged and undermined economic growth. Private sector investment continues to languish and private consumption has yet to reach pre-pandemic levels. Omicron-led third wave of COVID-19 is bringing more headwinds. In such a situation, government investments in the infrastructure sector will stimulate the economy.
Third, in the last two years of COVID-19, countries, developed and developing alike, have triggered massive investments, including in infrastructure, to get economies back on track. Despite some far-reaching reforms, India has so far been cautious about stimulus. It is time for infra to give growth a boost, temporarily putting budgetary and inflationary fears on the back burner.
Fourth, macroeconomists agree that in a downturn, faster investment in infrastructure is the cure for the economy. Aside from its direct contribution to employment, construction and materials, the infrastructure push has a strong multiplier effect – 2.5 to 4 times – on the economy.
Fifth, empirical evidence abounds that “for a struggling economy, promoting infrastructure is the right choice”. US President Roosevelt’s “New Deal”, the infra-surging growth of Japan and South Korea in the second half of the last century, and the never-ending dream of the Chinese economy are examples where the infra surge has led to a massive surge in GDP with a concomitant reduction in absolute poverty.
If this is the case, my singular wish from the Minister of Finance is: infrastructures, infrastructures and more infrastructures.
And this author believes his wishes are in sync with the Modi government’s bold infrastructure program, reaffirmed in the last budget. The $ 1.5 trillion National Infrastructure Pipeline (NIP) first announced in 2019 increased the basket of projects from 6,400 to 7,400. This “New Deal of India” is more ambitious than the rejuvenation plan infrastructure of US President Biden. There are many other aspects of the government’s grand and daring infra push. A development finance institution (DFI) managed by professionals to act as a supplier, facilitator and catalyst for infrastructure development with a target of Rs 5 lakh crore book loan in three years is critical.
And, the ambition has grown bigger with Rs 100 lakh-crore Gati Shakti, aiming to reduce the logistics costs of infrastructure projects by ensuring that the different ministries are working in a coordinated manner. AMRUT (Atal Mission for Rejuvenation and Urban Transformation), Smart Cities, massive focus on urban transport, Swachh Bharat 1.0 and 2.0, Jal Jeevan Mission, Pradhan Mantri Urban and Rural Awas Yojana are some of the many pieces of the puzzle below.
Each year, plans multiply and expenses increase. Now is the time to speak.
The Prime Minister rightly says: “We have to work in one hundred percent mode”. But are we?
Areas of intervention for the 2022 budget
In the midst of a growing cacophony, how is the performance on the pitch?
First of all, border infrastructure has been strengthened, from all-weather roads, from tunnels, railways, airstrips and helipads to projects of critical and strategic importance to Indian policy in Act East. Budget 2022, however, is expected to make a full allocation to complete all of these projects over the next two years, including 20 projects costing Rs 75,000 crore to connect the capitals of eight northeastern states and their towns to level 2/3 with an operational rail network.
Of them, highways and highways have been a priority for NDA governments — the current government has increased the speed of execution. Appreciable achievements, but the pendulum has swung too much in favor of highways and against railways. It is time to relaunch the two-pronged policy: first, instead of building more and faster highways at breakneck speed, improve the productivity of existing sections and encourage the large-scale creation of electric vehicle charging infrastructure. for the growing needs of personal and commercial vehicles. Second, it’s time to look beyond highways and pay accelerated attention to high-speed trains (passengers) and half-speed trains (freight).
Three, the record of the current government in the creation of urban rail transport infrastructure (metro-rail) is commendable with 18 cities having an operational network of 800 km, more than 1,000 km of construction at different stages in 24 cities and an additional 1,000 km at the planning stage. This planning and pace of construction is comparable only to that of China and is in tune with the cities which are the engines of growth. It also aims to reduce pollution in cities, preparing them to welcome 600 million city dwellers by 2030. The Metro Rail Policy, 2017 was a formidable catalyst, giving primacy to the economic internal rate of return (IRER) over compared to the financial internal rate impossible to achieve before. return (FIRR) for sanction of rail metro projects.
While commendable, there is one problem: the metro is expensive to build and operate, is not intended for all cities, and it still lacks multimodal and last mile connectivity in cities where it is operational. . Efficient green buses, intermediate transport and non-motorized transport infrastructure are essential needs. While providing for these, the budget must demand the completion of sanctioned metro and other urban transport projects within strict time and cost.
Fourth, Indian Railways (IR) stands out as the biggest laggard. Even before COVID-19, railways faced an existential crisis, losing passengers on the road and in the air as freight to highways, increasing personnel and retirement costs, and the heavy burden of the management of schools, colleges and hospitals. After COVID-19, this crisis worsened. The time has come for meaningful, achievable and enforceable reforms.
What should the 2022 budget foresee? First, clear tracks to complete the dedicated freight corridors to the east and west; they are a decade behind with a 100 percent cost increase. Second, refrain from announcing more freight corridors. Third, announce 5,000 km (350 km / h) high-speed intercity passenger corridors that will be completed in 10 years. Since talking about the HSR Ahmedabad-Mumbai Corridor, China has operationalized a 40,000 km HSR network, bringing together its cities.
Fourth, convert 10,000 km of the existing route to a semi-high speed train (250 km / h) to improve the productivity of the line. Fifth, aggressively opt for the fruit at your fingertips: modern signage and communication. Sixth, get practical with station modernization, start by creating the world’s 10 best stations before you think bigger. Seventh, immediately stop the unwanted plan to put the listed rail PSUs on hold and merge; think sideways instead, merge rail zones into cohesive business units, build on the legacy of 19th century schools, colleges, hospitals, and sell factories making coaches, wagons and locomotives. A bus operating company does not make buses, even metro systems in India buy the best metro cars and not make them.
This is the first in a two-part series on how Budget 2022 can deliver on infrastructure promises and growth.
The author is an infrastructure expert and President, Advisory Services, BARSYL Limited. The opinions expressed in this article are those of the author and do not represent the position of this publication or the author’s company.
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