A Robust and Resilient Infrastructure Needed to Create a Ten Trillion Dollar Economy by 2032

Survey Stresses on Innovative Approach Under PPP to Bridge Investment Gaps in Infrastructure

Institutional Mechanism Required for Dispute Resolution in Infrastructure Sector Says Survey

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman tabled the Economic Survey 2018-19 in Parliament today. In an analysis of the Industry and Infrastructure sectors of the country, the Survey has noted that India needs to build a robust industry with a buoyant and resilient infrastructure. The industrial growth rate in terms of Index of Industrial Production (IIP) during 2018-19 stood at 3.6 per cent as compared to 4.4 per cent growth rate in 2017-18. The moderation in 2018-19 has been mainly on account of  subdued manufacturing activities in Q3 and Q4 due to various reasons like liquidity crunch, slower credit flow etc. Meanwhile, the eight core infrastructure supportive industries have achieved the overall growth rate of 4.3 per cent during 2018-19 similar to the increase achieved in 2017-18.

The Survey further observes that the Government has initiated a number of measures  such as Start-up India, Ease of doing Business, Make in India, Foreign Direct Investment Policy reforms in crucial sectors to accelerate higher manufacturing growth. India has considerably improved its ranking to 77th position from the previous 100th among 190 countries, in the World Bank Ease of Doing Business Report in 2018. The Government is playing a proactive role in investment promotion through a liberal FDI policy. During 2018-19, total FDI equity inflows were US$ 44.36 billion as compared to US$ 44.85 billion during 2017-18. Building sustainable and resilient infrastructure has also been given due importance with the formulation of sector specific flagship programmes such as SAUBHAGYA, PMAY etc. Road construction in kms grew @ 30 kms per day in 2018-19 as compared to 12 kms per day in 2014-15. Rail freight and passenger traffic grew by 5.33 per cent and 0.64 per cent respectively in 2018-19 as compared to 2017-18. Total telephone connections in India touched 118.34 crore in 2018-19. The installed capacity of electricity has increased from 3,44,002 MW in 2018 to 3,56,100 MW in 2019.

Indian Industry: an Overview

The Survey notes that the industrial sector performance during 2018-19 has improved as compared to 2017-18. The growth of industry  real Gross value Added was higher at 6.9 percent in 2018-19 as compared to 5.9 percent in 2017-18. The industrial growth rate in terms of Index of Industrial Production (IIP) was 3.6 percent in 2018-19 as compared to 4.4 percent in 2017-18.The mining, manufacturing and electricity sectors registered positive growth rates of 2.9 percent, 3.6 percent and 5.2 percent respectively in 2018-19.

The Central Public Sector Enterprises(CPSEs) play a significant role in Indian economy. Out of  257 operational CPSEs,174 are making profits and two are at no profit and no loss. The Survey states that there is great scope for improvement in performance of CPSEs.

The Survey further notes that the rate of growth of Gross Capital Formation in industry has registered a sharp rise from (-) 0.7 percent in 2016-17 to 7.6 percent in 2017-18, showing upward momentum of investment in industry. Also, according to RBI, the growth in Gross Bank Credit Flow to the industrial sector has increased by 6.9 percent in March 2019 compared to increase of 0.7 percent in March 2018.

The Government of India has taken several industry specific reform initiatives since 2014 that have significantly improved the overall business environment. In order to promote innovation and entrepreneurship among enterprising youth, Prime Minister of India had announced the “Start-up India, Stand-up India” initiative on August 15, 2015. 16,578 new start-ups were recognized as on March  2019 across 499 districts. Steps have been  taken for easing regulations such as exemption from Income Tax  on investments raised by Start-ups etc.

The Government is playing a proactive role in investment promotion through a liberal FDI policy. With the aim of boosting investment in infrastructure, National Investment and Infrastructure Fund has been created with a capital of approximately ₹ 400 billion to provide investment opportunities to commercially viable projects.

MSME

The Government has made various key announcement for faster growth of MSME sector and for promoting ease of doing business that included ‘in-principle approval’ for loans up to ₹ 1 crore within 59 minutes through online portal. Interest subvention of 2 per cent for all GST register MSMEs on incremental credit up to ₹ 1 crore is also being provided and will be in operation for a period of two financial years 2018-19 and 2019-20 with an allocation of ₹ 975 crore. The Government has undertaken a number of schemes/programmes like the Prime Minister’s Credit Guarantee Trust Fund for Micro and Small Enterprises, Credit Linked Capital Subsidy Scheme for Technology Up-gradation, Scheme of Fund for Regeneration of Traditional Industries and Micro and Small Enterprises Cluster Development Programme for the establishment of new enterprises and development of existing ones.

Road Sector

The Survey notes that highways construction in the country touched a new high of 30 km per day in 2018-19 as compared to about 12 km per day in 2014-15. This was achieved through proactive policies that include process streamlining, better inter-ministerial coordination, steps to address languishing projects, innovative project financing leveraging both private and public funds, streamlining land acquisition processes etc. The investments in the sector rose from ₹ 51914 Crore in 2014-15 to ₹ 158839 cores in 2018-19.

Some of the major outcomes in the road sector during the period 2014-15 to 2018-19 include construction of Eastern and Western Peripheral Expressways around Delhi, Delhi Meerut Expressway, Chenani- Nashri tunnel in Kashmir, Dhola –Sadiya Bridge over Brahmaputra in Assam.

Civil Aviation

The Survey observes that India’s scheduled domestic air transport for passenger and goods rose by 14 percent and 12 percent respectively in 2018-19. Domestic passenger traffic in Revenue Passenger KM (RPK) recorded the fastest growth in the world at about 20 percent for over 50 consecutive months upto December 2018. New Greenfield airports are being developed very fast. At the end of  2018-19, 107 airports were providing scheduled airlines operation.

Under the UDAN ( Ude Desh Ka Aam Nagrik) Scheme for regional air connectivity, a total of 719 routes have been awarded, 182 of which are operational. The scheme has provided connectivity to 23 unserved airports against the aim to operationalize 100 airports by 2026-27.

Domestic air cargo grew by 12.1 percent in 2018-19, with cargo handled reaching 3.6 MMT The first National Air Cargo Policy outline was released in January  2019. It aims to take cargo handling to 10 MMT by 2026-27. High airport tariffs, royalty, shortage of skilled manpower, recourse to overseas suppliers of Maintanance, Repair and Overhaul (MRO) facilities, high and unpredictable change in global crude oil prices and high taxes on aviation turbine fuel are some of the challenges faced by the sector, points out the Survey.

Shipping

As on January 31, 2019, India has a fleet of 1405 ships with Dead Weight Tonnage (DWT) of 19.22million (12.74 million GT) . Ports handle 90 percent of EXIM cargo by volume and 70 percent by value. Expansion of port capacity has been accorded highest priority under projects like Sagarmala, Project Unnati etc. The Ministry of Shipping has taken many steps towards facilitating Ease of Doing Business. These include steps for reducing dwell time and transaction cost at major ports.

On the inland waterways front, India’s first inland waterway multi modal terminal at Varanasi was inaugurated in November 2018 by Prime Minister, who also received the first container consignment that sailed over Ganga from Kolkata. Inland waterways are being promoted as cheaper and more environment friendly modes of transport. Efforts are on to develop a waterways route to the North Eastern states through the Indo Bangla Protocal Route. The cargo traffic on inland waterways was 55 million tones in 2017-18, and has grown by 31 percent in 2018-19.

Telecom Sector

The Survey notes that total telephone connections in India rose to 118.34 crore in 2018-19 from just 93.3 crore in 2013-14, registering a growth of 26.84 per cent. 51.42 crore connections are in the rural areas.  Wireless telephone constitutes 98.17 per cent of all subscriptions. The overall tele-density in India stands at 90.10 percent, the rural tele-density being 57.50 per cent and urban tele-density being 159.66 per cent at the end of March 2019.

The mobile industry in India has witnessed exponential growth over the last few years. As per a GSMA report, the Mobile industry supports about 6.5 per cent of India’s GDP, and is expected to reach 8.2 per cent by 2020.  In 2018, mobile technologies and services generated 4.6 per cent of GDP globally, a contribution that amounted to US$4.8 trillion (4.8 per cent of GDP) and also supported a total of 32 million jobs (directly and indirectly)

Further ahead, 5G technologies are expected to contribute US$2.2 trillion to the global economy over the next 15 years, with key sectors such as manufacturing, utilities and professional/financial services benefiting the most from the new technology. The 5G has been conceived as a foundation for expanding the potential of the Networked Society. The Government has constituted High Level 5G India 2020 Forum to articulate the Vision of 5G in India and submitted its report on “Making India 5G Ready” in August 2018.

The transformational impact of M2M/IoT for the common people will be realized through transformation of the way services are designed and how they utilize information to meet the needs of citizens more efficiently and effectively.

During 2018-19 FDI flow to telecom sector touched US$2.67 billion which is more tha double the level of US$1.3 billion in 2015-16.

Petroleum and Natural Gas

The Survey has observed that Government aims to “Reform, Perform and Transform” the energy sector of the country by achieving self-sufficiency. Ministry of Petroleum & Natural Gas has undertaken a series of reforms and new initiatives. Some of these include Hydrocarbon Exploration Licensing Policy (HELP)/ Open Acreage Licensing Policy (OALP), Discovered Small Field (DSF) Policy, Policy to Promote and Incentivize Enhanced Recovery Methods for Oil and Gas etc.

The Government has taken several decisions this year with the view to promote exploration, early monetization, incentivize production, streamline procedure and promote ease of doing business.

Pradhan Mantri Ujjwala Yojana was launched with the objective of providing LPG connections to five crore women belonging to the Below Poverty Line families. More than 7.189 crere LPG connections have been released under this scheme as of 31 march, 2019.

Power Sector

Commendable progress has been take in generation and transmission of electricity. The installed capacity has increased from 3,44,002 MW in 2018 to 3,56,100.19 MW in 2019. Total generation of energy during 2018-19 was 1376 BU (including imports and renewable sources of energy).

As on March 2019, 2.62 crore households have been electrified since the launch of SAUBHAGYA scheme ( Pradhan Mantri Sahaj Bijli Har Ghar Yojna).

Housing

The Real Estate Regulation and Development Act, 2016 (RERA) was brought in to ensure regulation and promote reas estate sector in an efficient and transparent manner and to protect the interest of home buyers,

Pradhan Mantri Awas Yojana (Urban) was launched on 25 June, 2015 with the objective of providing housing facilities to all the eligible families/beneficiaries by 2022. So far 4,427 cities/towns have been included under PMAY (U).

Smart Cities Mission was launched in June 2015 for a 5-Year period with the objective of promoting cities that provide core infrastructure and give a decent quality life to its citizens. Under the SCM, all 100 cities have incorporated Special Purpose Vehicles, City Level Advisory Forums and appointed Project Management Consultants.

The first framework on ‘Ease of Living’ Index for cities was launched in June 2017 with the objective of framing an index to enable a shift to data driven approach in urban planning and management and promote healthy competition among cities. The Ease of Living Index 2019 was introduced with more focus on outcomes.

The Survey goes on to observe that a robust and resilient infrastructure is fundamental and essential for budding industries. While India has invested in its infrastructure over the years, the challenge is to mobilize adequate investment in infrastructure sector which runs into several trillions of dollars. The investment gaps in the infrastructure would have to be addressed through various innovative approaches with the collaboration of both public and private sector. Private investment in infrastructure has come mainly in the form of PPPs.

One of the challenges facing this sector is to devise a comprehensive resolution/ settlement option for projects which are either stuck-up mid-way or wherein the arbitral disputes/claims have not been settled. The need is to establish an institutional mechanism to deal with time-bound resolution of disputes in infrastructure sectors.  .

In order to create a ten trillion dollar economy by 2032 India needs a robust and resilient infrastructure. Public investment cannot fund the entire infrastructure investment requirements of the country. Therefore, the real challenge lies in bringing adequate private investment across the country with the collaboration of public sector.