NEWS HIGHLIGHTS
Theme : Mobilization of Resources, Infrastructure
Paper : GS - 3
Infra-Deficit India: India has the second largest infrastructure deficit in the world (after Brazil) as it has grown at a rapid pace of over 6% since the early 1990s without commensurate increase in supply.
TABLE OF CONTENT
- Context
- Current Scenario of Infrastructure in India
- Infrastructure Related Challenges
- How to Strengthen Infrastructure Sector
- Benefits of getting “Infrastructure Status” to any sector
- Relation Between Infrastructure & Economic Development
Context : Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government.
Current Scenario of Infrastructure in India :
-
Significance of the Sector:
-
Infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure and construction development projects.
-
Global investors have started to view India as one of their top destinations for infrastructure projects. India offers a higher rate of return on infrastructure projects, given its youth bulge, rise of the middle class, and a huge domestic market.
-
-
Infra-Deficit India: India has the second largest infrastructure deficit in the world (after Brazil) as it has grown at a rapid pace of over 6% since the early 1990s without commensurate increase in supply.
-
As per the World Bank’s Financing India’s Urban Infrastructure Needs report, by 2036, 600 million people will be living in urban cities in India, representing 40% of the population.This is likely to put additional pressure on the already stretched urban infrastructure and services of Indian cities.
-
Only 5% of the infrastructure needs of Indian cities are currently being financed through private sources.
-
-
Related Initiatives:
-
The government has launched the National Infrastructure Pipeline (NIP) for the period FY 2020-25 for supporting development of infrastructure, urban infrastructure being one of the key focus areas.
-
The Government also launched the ambitious Gati Shakti scheme with the aim of coordinated planning and execution of infrastructure projects to bring down logistics costs.
-
The National Investment and Infrastructure Fund (NIIF) is a government-backed entity established to provide long-term capital to the country’s infrastructure sector. It was set up in December 2015 as a Category-II Alternative Investment Fund.
-
In November 2021, India, Israel, the US, and the UAE (I2U2) established a new quadrilateral economic forum to focus on infrastructure development projects in the region and strengthen bilateral cooperation.
-
In March 2021, the Parliament passed a bill to set up the National Bank for Financing Infrastructure and Development (NaBFID) to fund infrastructure projects in India.
-
Infrastructure Related Challenges :
- India’s biggest challenge is the huge infrastructure financing gap, which is estimated to be more than 5% of GDP.
- Land acquisition, aggressive bidding and non-performing assets are key challenges to infrastructure PPPs (public-private partnerships).
- India is dealing with a high level of stressed assets, and there is a need to restore credit growth for public sector banks as fundamental to the future growth of the economy.Stressed assets in banks combined with little bank capital could lead to additional and potentially crippling losses on these assets.
- Also, the lack of stability of credit interest rates poses a significant risk for investments in the sector.
How to Strengthen the Infrastructure Sector ?
-
Ensuring Consistency in Policy/Regulatory Framework: There is a need for a better regulatory environment and consistency in the tendering process. Lack of consistency and policy coherence across different government departments should be addressed as a priority.
-
Reasonable User Charges: It is necessary for augmenting infrastructure financing, financial viability of infrastructure service providers, and for environmental and resource use sustainability.
-
User charges are crucial because in many areas across the country, partly because of zero or very low user charges, there is over-use and wastage of the precious resources (for instance, groundwater).
-
Besides the environmental sustainability and resource use efficiency that would emanate from reasonable user prices, this policy priority has immense resource generation potential.
-
-
Autonomous Regulation of Infrastructure: As India and the world opens up more sectors to private participation, the private sector would essentially demand autonomous infrastructure regulation.
-
The world-wide trend is towards multi-sectoral regulators as the regulatory role is common across infrastructure sectors, and such institutions build regulatory capacity, conserve resources and prevent regulatory capture.
-
-
Asset Recycling (AR) and BAM: The basic idea of BAM (Brownfield Asset Monetisation) is to augment infrastructure resources through brownfield AR for accelerated greenfield investment by freeing up funds tied up in de-risked brownfield public sector assets.
-
These assets can be transferred to a trust (InvITs) or a corporate structure (TOT model), which receive investment from institutional investors against a capital consideration (which captures value of future cash flows from these underlying assets).
-
India has a large stock of brownfield assets across infrastructure sectors.
-
-
Utilizing Domestic Funds: Domestic sources such as India Pension Funds which have been lying dormant could give a big boost to the sector if utilized efficiently.
-
India can emulate the practices in Canada, the Netherlands, Australia and the likes on efficient usage of domestic funds to push infrastructure development.
-
Benefits of getting “Infrastructure Status” to any sector :
- Govt could give them tax benefits, lease public land at a token price, faster environment clearance, automatic FDI approval
- RBI could help them by relaxing the External Commercial Borrowing (ECB) norms, Debt restructuring (e.g. RBI’s 5/25 rule), Changing PSL norms etc.
- SEBI could relax norms for REITS/InvITs funds to help them mobilize capital easily for the infrastructure sector.
- IRDA & PFRDA could oblige insurance and pension companies to invest minimum % in infrastructure companies etc.
- They could get easier funding from the World bank & other multilateral banks.
Relation Between Infrastructure & Economic Development :
- Increase in investment: The development of agriculture to a considerable extent depends on development of irrigation, power credit, transportation, marketing, education and training, research and development and other facilities.
- Industrial development: It also depends on a sound infrastructure base to a large extent.
- Employment generation: Infrastructure improves mobility, productivity and efficiency of labor.
- Trade & commerce: Infrastructure facilities play a vital role in the development of trade and commerce. In fact they act as a platform for the expansion of trade and other commercial activities at a rapid speed.
- Thus, infrastructure development can have a significant impact on economic growth. For low income countries, basic infrastructure such as water, irrigation and to lesser extent transport are important. As the economies mature into the middle-income category, the share of power and transport and telecommunications in infrastructure and investment increases.
- Also, infrastructure not only contributes towards the development of backward regions and removal of regional imbalance but also acts as an instrument of social change. Extensive studies undertaken by the World Bank show that 1% increase in investment in the stock of infrastructure leads to a corresponding 1% increase in the GDP of a nation.
FAQs :
1. What is the Idea of BAM ?
Answer : The basic idea of BAM (Brownfield Asset Monetisation) is to augment infrastructure resources through brownfield AR for accelerated greenfield investment by freeing up funds tied up in de-risked brownfield public sector assets.
2. What is India's Biggest Challenge ?
Answer : India’s biggest challenge is the huge infrastructure financing gap, which is estimated to be more than 5% of GDP.