Infrastructure Crisis

Infrastructure sectors are consider to be bedrock of any economy and Indian economy is no different. Infrastructure is not only vital for growth of Indian economy but also for overall development of an economy. Any growth in an infrastructure sector has a multiplier effect on overall economy growth as it soars manufacturing and industrial growth which in turn increase consumer demand and overall standard of living. The infrastructure sector is often comprises of : Road, Railways, Power, Urban Infrastructure.

Over the years investment deficit has soars as infrastructure investment rate has decline since the highs of 2011-12. This has led to many stalled projects, delays, cost overrun and financially its been a nightmare because infrastructure project requires huge loans and these loans have fixed repayment schedule. If the project get finished on time, revenues from project finance the loans. But if the project gets delayed by months, years it gets bad. Its even worse if the project are unable to operates due to change in land acquisition policy, legal cases, abruptly changes environment regulation.

Its important to get infrastructure on the right track because its a key for an economy as it generation of huge employment which in turn increases income level, which results in increase in consumer demand which shoot up aggragte demand which leads higher level of output hence, higher growth of an economy. So, here are few general decision government should take.

Maintain Macroeconomic stability

Maintaining the macroeconomic stability is key for creating an environment that attract huge investment. There are two imporatnt macroeconomic indicator.

  1. Fiscal consolidation – It means government should take policy decision that reduces its fiscal deficit. It will leads to reduce in inflation rate which in turn leads to low interest rate in an economy. Low interest rate means that loans are cheaper as compared to before therefore it’ll more and more people to invest in economy. At the same government should maintain a healthy stock of savings to channelize into investment.
  1. Stability of inflation rate – It means there is no volatality in inflation rate which helps investor to know how much they are getting return for their investment.

It has often found that unstable macroeconomic indicator discourage investment whereas well articulated policy that maintain macroeconomic indicator invites many investors from all over the world.

Reform Public Finance

The government must scale up investment but in fiscal responsible way. There are few ways of doing it. Firstly, Reducing the government expenditure from current expenditure and increase the investment in capital good without raising national debt doing so will leads increase in capital formation in an economy and leads to higher growth. Raising GST by simplyfing, encouraging people and better targeting. Disinvest the non perform public sector enterprisis and monetize government holding and using process to invest in new infrastructure.

Declutter stalled projects

The number of stalled project sky rocketed in recent years. Majority of these stalled project are due to government policy. Here are few things that government can do.

Land Acquisition – Since the enactment of Land Acquisition, Rehablitation and Resettlement (LARR) in 2013, many states have explored some creative method acquiring land without invoking LARR. For example Andhra Pradesh introduced land pooling method to acquire the land for state capital Amravati. Under which 25000 farmer pooled 33000 acre of land by giving them alternative form of compensation in this case a share of developed land.

Environmental Clearance – The Environmental regulation agency should strengthened to ensure smooth functioning and transparency and enable them to take decision backed by data. This institution should also be headed by someone who has great knowledge about this sector.

Private Public Partnership (PPP) – The government should invite private sector to participate in reviving the stalled project. The government should give incentive to motivate them to invest in stalled projects.

Corporate Bond

While the bank remain an important instrument to finance any long term project or to increase any capital requirement its not the only option . It should promote usage of corporate bond . It refer to bonds issued by corporation to raise money to finance the projects.

While these some ways in which government can revitalize the infrastructure sector. Recently, government took great interest as well measure for resurgence of infrastructure sector. From road and highways construction to development of inland waterways as a new mode of transportation. The new policy is being formed for railways, aviation, coal, urban sector. Recently, government has National infrastructure Pipeline. National Infrastructure Pipeline Project will  play a crucial role in pulling the country out of impact of Covid 19.  NIP is a project that will revolutionize India’s infra creation efforts. Many new jobs will be created , our farmers , youngsters , entrepreneurs will benefit. If India has to transform it should invest hugely in its infrastructure.