Budget 2021 Expectations: Modi govt may speed up infra building but states’ limited capacity can hinder growth

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Updated: Dec 17, 2020 11:20 AM

Union Budget 2021 Expectations for Infrastructure: The government should consider raising investment funding for the National Infrastructure Pipeline (NIP) through borrowings from overseas markets by the issuance of overseas bonds.

Infrastructure Budget 2021 Expectations, Budget 2021 Expectations for InfrastructureOf the total investment in infrastructure in the country, almost 40 per cent comes from the states.

Union Budget 2021-22 Expectations for Infrastructure: The government is expected to boost spending in the next fiscal year 2021-22, in an effort to push India’s growth and make the call of Atmanirbhar Bharat to reap more fruits. Infrastructure, arguably the mainstay of Prime Minister Narendra Modi’s government, could see heightened push. However, there are chances that the Centre’s effort may face roadblocks due to the states’ limited capacity to spend. A higher spending in the budget due in February will lay the foundations for even stronger growth in the next four to five years, Finance Minister Nirmala Sitharaman had recently said. FM Sitharaman had suggested the government could open purse strings in the months ahead to boost the growth rate.

Central govt may sprint ahead; states may fail to catch up

Of the total investment in infrastructure in the country, almost 40 per cent comes from the states. The last six months of the current year already showed that the central government is very keen to expand its infrastructure footprint and there has been a fair amount of acceleration. However, the states this year, as well as next year, will remain constrained because of their high fiscal deficit and lack of liquidity.

“We expect that while the central government will contribute significantly and has all the intentions to do that, the state government may not be able to match the steps and they may pull down the overall investment growth”, Abhaya K Agarwal, Partner, Strategy and Transaction, Infrastructure & Government and Public Sector, EY India, told Financial Express Online.

Infrastructure: At the core of building an Atmanirbhar Bharat

On the back of a series of bold economic reforms announced by the Government in the last few months, significant recovery in the key economic and business indicators has instilled expectations of strong and sustainable growth in the coming quarters. It is further expected that increased spending on infrastructure will rejuvenate the aggregate demand and it will be the key ingredient to realize the vision of Atmanirbhar Bharat, Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry, told Financial Express Online. Raising infrastructure spending, among other things, can truly set the stage for India to become Aatmanirbhar in coming times, he added.

Also Read | Budget 2021: FY21 disinvestment target at Rs 2,14,000 cr; only Rs 6,500 cr achieved so far

Where will money come from…

It is recommended that the government should consider raising investment funding for the National Infrastructure Pipeline (NIP) through borrowings from overseas markets by the issuance of overseas bonds through an SPV that could act as a mega Development Financial Institution — DFI. The DFI could initially finance public sector infrastructure investments, and, as the economy picks up steam, could also finance the private sector infrastructure projects, Sanjay Aggarwal said.

“We are expecting the government to continue to focus on spending on infrastructure and might see similar commitments towards public expenditure on infrastructure in Budget 2021 as in earlier years,” Neelakantan V R – Partner, Project & Project Finance, Shardul Amarchand Mangaldas & Co, told Financial Express Online. 

… and where it must go

Industry bodies have suggested increasing the public investments in agricultural infrastructure and raising the health expenditure as a percentage of GDP to 2 per cent to build hospitals, setting up training institutions, among others all across the country. Meanwhile, the finance minister had said that she has to be conscious that if the government doesn’t spend now, then the stimulus is meaningless. Also, in absence of spending now, the revival is going to get deferred, which the government can’t afford, she had said.

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