State governments’ rising share to characterise investment scenario in infrastructure

By: |
January 7, 2020 1:33 PM

The FDI and other foreign sources of funding can make up the balance of the investment required. It is therefore gratifying that the high-powered committee formed by the government to identify major projects for funding in next five years has come out with a segment-wise list of major infrastructure projects titled National Infrastructure Pipeline (NIP).

State govt, share, investment, infrastructure, National Infrastructure Pipeline, NIP, rural infrastructure, digital infrastructure, agriculture and food processing infrastructure, social infrastructure (education, health & family welfare) and industrial infrastructureEstimated investment required drew some inputs from The Global Infrastructure Outlook 2017 brought out by Oxford Economics which projects $4.5-trillion (Rs 323.1 lakh crore at current exchange rate) requirement by 2030 to be spent on infrastructure by India to sustain its growth rate.

It has been repeatedly put across in this column that one of the primary factors that would provide a solution for demand slowdown and therefore is capable to rejuvenate specifically the industry sector is massive investment initially by the government and subsequently, if not simultaneously, by the private sector.

The FDI and other foreign sources of funding can make up the balance of the investment required. It is therefore gratifying that the high-powered committee formed by the government to identify major projects for funding in next five years has come out with a segment-wise list of major infrastructure projects titled National Infrastructure Pipeline (NIP). Sectors chosen are roads, railways, ports, airports, affordable housing, Amrut & Smart Cities, Jal Jeevan Mission, energy, irrigation, rural infrastructure, digital infrastructure, agriculture and food processing infrastructure, social infrastructure (education, health & family welfare) and industrial infrastructure (including steel).

Estimated investment required drew some inputs from The Global Infrastructure Outlook 2017 brought out by Oxford Economics which projects $4.5-trillion (Rs 323.1 lakh crore at current exchange rate) requirement by 2030 to be spent on infrastructure by India to sustain its growth rate.

The rapid urbanisation (from 34% in 2018 to 42% in 2030), large base of working population (15-64 years of age), the predominant role by the service sector (from 54% share in FY18 to 58% share in 2030, with industry share gaining 34% only from 31% in FY18) and similar trends observed in Indian economy would shape the volume and quality of infrastructure needs of the economy. A large part of this would be in line with some of the mega schemes that the government is closely monitoring recently.

Two crucial facts form the basis of future calculations of the investment needs for infrastructure. During 2008 and 2012 (11th Plan), India spent Rs 24 lakh crore on infrastructure and between 2013 and 2017 (12th Plan), expenditure was Rs 36 lakh crore at current prices. In 2018 and 2019 the total expenditure was of the order of Rs 20.2 lakh crore. Of the total infrastructure investment by India during the past 12 years of Rs 80.2 lakh crore, about 65% was public investment, with the rest 35% from private sector.

State governments have been participating in an increasing role in infrastructure investment and in the past three years, average share of these governments was 54% of the total public investment and it is quite likely that the same trend, if not strengthened more, would characterise the investment scenario in infrastructure in coming years.

Five sectors, namely power, roads and bridges, railways, urban and digital infrastructure constitute the bulk (> 85%) of infra investment. Of the residual, irrigation accounted for 9% share. While public investment was primary source for power, roads, urban and railways, the private sector drove the digital investment and the state played a major role in irrigation investment.

Based on a bottom-up methodology of combining all infra projects under implementation, proposed greenfield and brownfield projects and the ones in conceptual stage compiled by various concerned government departments have been done to arrive at an estimated investment year-wise from FY20 to FY25 (6 years). While the total infra investment totals Rs 102. 51 lakh crore in next six years, the same has also been broken into economic and social infrastructure.

For estimating demand for steel, it is known that share of steel in social infra, namely education, health, agriculture, food processing, is minimum except in the construction of schools, colleges, hospitals, stadiums and other types of buildings.

Also, steel is required for supply of drinking water, sewerage transportation, etc. It is necessary to make a distinction of steel demand emanating from civil construction associated with water supply and sanitation projects, and the steel pipe requirement from actual implementation of these projects.

While a certain percentage (20%) of the total civil expenditures can be earmarked for steel, the estimated demand for steel pipes for water transportation can be worked out by the norm of steel intensity per kilometre of distance covered. This would, however, require a clear indication of the amount earmarked for construction of infrastructure building, civil construction, transportation and other non-construction expenditures.

By excluding the amount earmarked in social infra structures (except that relating to construction and transportation) and the amount shown under FY20, the balance investment for infra sector for the next five years (till FY26) would provide an idea on the likely demand for steel from infra sector, subject to availability of data on specific areas of investment. This list summarises all the infra projects implemented and conceived in critical sectors of the economy can be updated periodically, depending on the annual progress from FY20 itself.

The actual implementation of the same is, however, subject to clearances, project viability assessment, project management pace and above all the funding sources. The list can be a good source of investment needs by infra sector to be incorporated into the Annual Budget exercise. For revival of the industry, it is essential that infra sector receives its funding from public, private and FDI for the NIP.

DG, Institute of Steel Development & Growth (Views expressed are personal)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Covid-19 epidemiology: Is India special?
2Is India trapped in a macro trilemma?
3Digital health mission: A $200-billion opportunity, NDHM will greatly empower patients