Desk

India needs an economic vision

December 2019
Chandrababu Naidu’s ire is not unjustified as he raked up the issue of the cancellation of orders on projects relating to trunk infrastructure, built over 34,000 acre that he had managed to obtain from farmers under land pooling. 

The Andhra Pradesh Government had readied a plan to develop over 54,000 acre of land pooled for the construction of the capital city at Amaravati. Its master plan, consisting of nine theme cities and 27 townships in 217 sq km, aimed to connect Amaravati with six neighbouring towns, including Vijayawada and Guntur. Cement prices have fallen by 40 per cent from levels in April 2019. Lulu Group, too, has decided to cancel its plan to invest Rs.22 billion in Andhra Pradesh after its land allotment was cancelled. It is estimated that projects valued at nearly Rs.300 billion have been put on hold, affecting the order book position of NCC, L&T and GMR, among others. 

Sacrificing economic goals to notch political points is the most regressive and unfortunate step that India can ill-afford. Uddhav Thackeray, the new Maharashtra Chief Minister, also wants to re-examine the metro-rail project. Hopefully, he has a timeline for this re-examination process. He could very well look at accelerating the Rs.140 billion Coastal Road Project, which has suffered a setback owing to the quashing of its environment clearance by the High Court. 

The project pipeline is already at its lowest in 14 years and private investment is at its lowest in 16 years. According to CMIE, revised estimates for 2018-19 show that new investment proposals declined by over 19 per cent compared to the new investment proposals made in 2017-18. This has been the fourth consecutive year of decline in new investment proposals. Even the best performing sector, roads, has seen a completion of construction of only 4,622 km by end September against its target of 12,000 km for the year. 

Crisil estimated that India needs infrastructure spending of Rs.2.35 trillion over the next decade, from 2021 till 2030, to be supported by an average GDP growth of 7.5 per cent and infrastructure spending of above 6 per cent of GDP. States will have to contribute close to half this infra outlay, or `110-125 trillion. States already account for 41 per cent of the overall infrastructure spending of Rs.77 trillion, including public and private spending in this decade. Five sectors – transport, irrigation, energy, urban and housing, and water and sanitation – accounted for two-thirds of states’ spending so far. However, with state finances under stress, capex plans have been hit. Populist measures and unproductive expenditure on the revenue account has depleted the ability of state governments to continue to drive the capex cycle. Value of new state government projects saw a 75 per cent decline from a year ago in the June-ended quarter of 2019, and is the lowest in 15 years.

The National Infrastructure Pipeline announced to build up a Rs.10 trillion investment in infrastructure over the next five years is to include greenfield and brownfield projects costing above Rs.1 billion each. The task force, headed by the Department of Economic Affairs (DEA) secretary, was to submit its report on the pipeline for 2019-20 by October 31, 2019 and on the indicative pipeline for 2021-25 by December 31, 2019. How the government can fund all these ambitious plans seems to be the trillion-dollar question.

On the brighter side, as we close this year with trepidation, the government is frantically looking for solutions when it is in between elections and keeps announcing some positive measures. But an integrated economic vision seems to be clearly missing.

After having secured India’s position as a software power, we have only been able to make a significant progress in pharmaceuticals and automobiles. Why not engineering, tourism and defence, be areas where we can also impact foreign exchange earnings positively? Tourism, for one, has tremendous scope for employment, construction and PPPS and dovetails well with our Bharatmala, UDAN, smart cities, AMRUT and Bharatnet plans. The PM needs to outline an economic vision for India for the next 25 years so we can gear up for global supremacy in five other sectors.
Wishing you a happy and growth-oriented year in 2020!
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