As a country, the first stage to providing a growth-led economy has been set as the verdict has been unanimous, allowing the current PM to continue the process of rebuilding India with the requisite authority in Parliament. The other ensuing benefit would be the acceleration of existing schemes and restoration of momentum to unfinished and ongoing contracts and projects.
The manifesto has outlined $1.44 trillion or Rs.100 trillion investment in infrastructure in the next five years, by 2024: To build roads, railways and other infrastructure like 100 new airports, 50 metros and so on, a boost to manufacturing, and a doubling in exports. The economy is in need of stimulus. Consumer spending has been reduced to a dribble as the IL&FS crisis snowballed. Projects are at a 14-year low (see ‘Editor’s Desk’, May 2018)! Investments have slowed and unofficial figures suggest that unemployment is looming. The government has already widened its budget deficit target for the year through March 2020 to 3.4 per cent of GDP. With revenues under strain, the government is borrowing more – it announced borrowing of Rs.7.1 trillion in 2019-20 as against FY2019, which stood at Rs.5.71 trillion, indicating a provision for the largest borrowing plan in the past nine years.
As per the Union Budget presented in February 2019, the government has planned to spend Rs.27.84 trillion, which is 14 per cent above last year’s expenditure. Amid the trade war between China and the US and the oil price spike, there is external volatility that India still cannot leverage to grab export market share. Internally, the banking mess has now hit the one factor that kept our engines running: Demand. To kickstart demand, lower interest rates will need to be passed onto borrowers, government spending programmes need to be spurred and the project pipeline needs to be recharged.
This March, PM Modi declared 2019-20 ‘The Year of Construction Technology’. Speaking at Construction Technology India 2019, he said, “India is among those nations where the demand for housing is growing at a rapid pace.
To meet this demand and increase the use of modern technology, I am declaring April 2019 to March 2020 as construction technology year.”
That said, the sector faces tremendous hardships. For instance, according to the CGST Act, at present, refund of input credit is available only for ITC on inputs (ie, goods other than capital goods) used in providing output supplies. This is resulting in denial of ITC refund in case of inverted duty structure in the service sector, including construction services and works contract services providers. This has resulted in a huge unutilised ITC balance in the hands of construction services and works contract services providers and led to a huge cash flow and permanent loss in cases of SPVs formed as JVs or consortiums.
In fact, India ranked 121st in ‘ease of paying taxes’, 163rd in ‘ease of enforcing contracts’, and 166th in ‘ease of registering a property’, even though it climbed several ranks to record the 77th position in ‘ease of doing business’. If private capital has to flow into supplementing the infrastructure story, this has to change too. The new government will have to step up the privatisation of banks and other PSU entities to usher in better accountability across the board.