Infrastructure Gets a Big Boost, Expecting High Growth Trajectory

Funding of these projects involves heavy capital expenditure and long gestation period and finding resources for the same is a crucial and challenging issue

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Union Budget 2021 has laid significant importance on the expenditure in the infrastructure sector. The role of spending on infrastructure sector, as a creator of multiplier effect for growth, is well recognized. The infrastructure sector which includes roads, bridges, ports, power and airports, etc., has direct positive impact on construction and employment, besides increase in demand for industries such as iron and steel cement, etc.

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The government has envisaged a national infrastructure pipeline (NIP) of over INR 110 lakh crore. This originally planned around 6,800 projects and in the recent budget additional projects have been announced to take the tally to more than 7,400. Fresh highway projects in select states such as Tamil Nadu, Kerala and West Bengal have been announced, with increase in expenditure of over 34 per cent. Further additional investments in airports, ports, railways, dedicated freight corridor, water ways and oil and gas projects, etc., have been announced.

Funding of these projects involves heavy capital expenditure and long gestation period and finding resources for the same is a crucial and challenging issue. The budget has addressed this in a bold and defining manner. Monetization of existing completed/running projects and disinvestments are going to be used as major source of funds. This is proposed through the innovative route of creation of INVITs (infrastructure investment trusts). As announced in the budget, in the roads sector, NHAI and in power transmission sector PGCIL (Power Grid Corporation of India) shall have separate INVITs. These work like mutual funds under the control of SEBI and arrange resources through retail and institutional investors.

Another important source of raising additional resources, announced in the budget, is through the setting up of a separate, DFI (development financial institution) with initial Equity of INR 20,000 crore. Total resources of around INR 5 lakh crore are expected to be raised through this in the course of next 3-5 years giving a fillip to the infrastructure sector. Special expertise to appraise and monitor infra projects is essential and this objective can also be achieved through this DFI.

In addition, conditionalities for foreign debt funds are proposed to be relaxed and modifications in IDFs (infrastructure debt funds) also have been proposed in the budget.

Accordingly, drastic and well thought out steps have been proposed to create a success story in development and funding of infrastructure sector to take the economy towards the revival path and a high growth trajectory.

All these steps are however long term in nature and effective implementation shall be crucial.