Budget 2018: In the Budget for 2018-19, a sum of Rs 5.97 crore has been allotted as Budgetary and extra budgetary expenditure on infrastructure sector exceeding last year’s estimated expenditure by more than 20%.
Budget 2018: The presentation of Union Budget was as usual preceded by the Economic Survey, which is an excellent exposition of the major economic challenges and opportunities facing the country in the past year and the year ahead. One needs more than a quick glance to appreciate fully the various interplay of economic parameters and these have been elaborated lucidly with examples and global comparisons. Take for instance the role of public investment in pushing up the multiplier impact of employment, income generation and thereby economic growth. It corroborates fully the significant role played by investment in scaling up the demand for steel as emphasised in this column on a number of occasions. It has been stated that the ratio of GFCF to GDP climbed from 26.5% in 2003, reached a peak of 35.6% in 2007 and slid back to 26.4% in 2017.
Further, while public investment during 2007-08 to 2015-16 has declined by 1.3%, the private corporate investment has come down by as high as 4.4% during the period. However, as a percentage of total investment, the share by private corporate sector is significant at 41% in 2015-16. It is also to be mentioned that private investment in the machinery and equipment segment is the highest compared to public investment and investment by the household sector. A cross country comparison has established that higher saving does not necessarily lead to more economic growth even if the reverse is true. The policies encouraging investment have always been and would always contribute to higher economic growth.
The second relevant point is to note that investment decline stemming from balance sheet stress, if it is large deficit, is a more challenging task and would require twin steps of resolving the stress assets and positive measures to revive investment. It is interesting to note that as per the Global Infrastructure Outlook, around $4.5 trillion worth of investment is required in India for infrastructure development till 2040. The current trend shows that India would be facing an investment gap of $526 billion by the end of coming 13 years. The gap has widened due to shortfall in PPP projects, especially in power and telecom, land and forest clearance issues, and above all, the adverse impact of stressed balance sheets of private sector.
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These are big sums and India needs to supplement its own saving with adequate FDI and financing from institutions like NHB, Asian Infrastructure Investment Bank and New Development Bank (Brics Bank). This piece on the role of investment in infrastructure in shaping the country’s growth chart in the next two to three decades should guide the investment policy of the government. In the Budget for 2018-19, a sum of Rs 5.97 crore has been allotted as Budgetary and extra budgetary expenditure on infrastructure sector exceeding last year’s estimated expenditure by more than 20%. Railways’ capex of Rs 1,48,528 crore is earmarked for 18,000 km of doubling, third and fourth line works, 5,000 km of gauge conversion, 3,600 km of track renewals and rolling stock programme for 12,000 wagons, 5,160 coaches, 700 locomotives during 2018-19. The work on eastern and western DFC is going on along with redevelopment of 600 major railway stations. Rs 16,800 crore has been allotted for MRTS and Metro projects.
In the road sector, the capex of Rs 1,22,000 crore has been earmarked for expansion of National Highways (more than 9,000-km length achieved in 2017-18). The seamless connectivity of interior, backward and border areas of the country would be achieved under the Bharatmala Pariyojana progamme, which has been recently approved. Water supply including sewerage works programme would cover around Rs 77,640 crore worth of projects under the state governments for 500 cities. Around 99 Smart cities for which a sum of Rs 2.04 lakh-crore outlay was earmarked are under various stages of project completion. A sum of Rs 4,086 crore is earmarked for civil aviation in the country, which would be spent on modernisation of old airports, creating minor airports and helipads. A sum exceeding Rs 44,500 crore has been allotted to the ministry of urban affairs to be spent on PMAY (Urban) and Affordable Housing. As state governments have emerged as the central players in carrying forward the actual implementation of a majority of projects, it is assessed that around 63% of capex would be spent at the state level for state schemes and centrally-sponsored state schemes.
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It is very much expected that public investment in most of the infrastructure sectors like railways, road, civil aviation, ports and coastal waterways, smart cities and affordable housing would crowd in private sector investment and also household investment. The recapitalisation of banks recently accomplished would enhance the credit extending capacity of the banks. The resolution of NCLT referred companies (majority is steel companies) in the next 6 months would enhance steel availability and revenue generation in the country and these factors would supplement the fund availability to execute the infrastructure projects as announced in the Budget. This equation sounds good for steel demand.
DG, Institute of Steel Growth and Development