Reviving private investment is critical
The Rs 7 lakh crore additional investment in the Bharatmala project, over the next five years, that the government has just promised will go a long way in pushing growth and helping bridge the yawning infrastructure deficit. But, as a Crisil report has just pointed out, India is unlikely to be able to meaningfully bridge the deficit until it gets private infrastructure investment back on track—this investment has collapsed over the past few years and, with big infrastructure players in serious financial trouble, it is not clear how this can be revived easily. The jump in infrastructure investment, from Rs 23.8 lakh crore in FY07-12 to Rs 37.2 lakh crore in FY13-17 looks good, but not against the original target of Rs 55.7 lakh crore. And the bulk of the slippage was due to private investment collapsing—this was supposed to rise from Rs 8.8 lakh crore to Rs 26.8 lakh crore but ended up at under half, at a mere `12.8 lakh crore. If the private sector investment share remains at the 35% levels of FY13-17, this means the slack will all have to be taken up by the public sector—this investment will have to rise from Rs 24.4 lakh crore in FY13-17 to Rs 32.5 lakh crore in FY17-22. That’s a huge jump, more so when you consider that state governments are spending less—from 1.9% of GDP in FY14-15, this fell to 1.7% in FY16.
Getting private investment back on track will obviously be difficult if the biggest players are in financial stress. But even maintaining the current share will require a dramatic change in policy. Of course, as Crisil points out, work will have to be done to deepen the corporate bond market, increase the amount of credit enhancement that can be done through various institutions, ease rules on InvITs, and ensure there is enough money with the NIIF since that will be an important source of finance. But more than that, a lot more needs to be done to make projects bankable. Long delays in acquiring land, the norm at present, wreck the finances of the best of projects. If SEBs don’t get financially viable quickly, private investors in power plants can’t possibly earn returns—Crisil talks of Rs 4 lakh crore of debt likely to become NPA if prevailing issues on fuel supply etc are not resolved. While road contracts need to be more flexible to account for traffic projections going awry—asking the private sector to assume this big risk was perhaps unwise in the past—the government has done well to, finally, come up with an arbitration forum. If investment has to happen in Railways, the regulator needs to be in place quickly and ensure private investor interests are taken care of; if station redevelopment is to attract investments, all municipal clearances need to be obtained by the Railways in advance.