A couple of days back the central finance minister announced the National Infrastructure Pipeline (NIP), a 102 lakh crore plan as to how the government aims to invest in the infrastructure sector over the next five years. In what appears to be the most ambitious plan yet by the current government to achieve the $5 trillion economy by 2025, the report details the infrastructure goals, strategies and the quantum of funds allocated to various sectors.
Why it matters?
Though infrastructure spending by governments are nothing new and governments are anyways expected to provide public infrastructure, there are a couple of reasons why this infrastructure push matters to the Indian economy and to any general citizen especially now.
India is growing
There is no doubt that India is one of the fastest growing major economies of the world. Even though the percentages have recently come down, the future looks positive and demand for basic infrastructure is only poised to go upwards. We now know the kind of push that the Interstate Highway System in US or the High Speed rail system in China have provided in propelling the respective countries forward on an economic front. Though India have missed the infra bus a couple of times in the past, I believe this is our final opportunity to catch up to international trends and if executed in its totality would make India competitive on the global front.
It is no secret that a major chunk of the Indian population is undergoing a rapid migration from its rural villages to urban cities in search of better economic opportunities. It is estimated that about 42% of our population would be in urban centres in 2030 from the current 31%. However, where we lack is that our current urban infrastructure is not even sufficient for the current population, let alone account for future growth. As urbanization trends continue, our current systems are expected to come to a gridlock and capacity addition of any degree would serve as a much-needed breather.
A weak public infrastructure incapable of meeting current demand and the growing population a major bottleneck in our current system. Though we have National Highways, Expressways, Railways, Metros etc. they are mostly over utilized and are being operated at a way higher capacity than it is capable of running efficiently. This leads a lot of operational inefficiencies in areas such as logistics, ease and quality of living, public utilities, and urban transportation. I hope the concerned authorities show the far-sightedness to design the upcoming infrastructure accounting for future growth, and it doesn’t suffer the same fate as the current systems in place.
Well, government deciding to execute such huge projects will definitely lead to a huge amount of job creation, in two ways.
Direct: It employs people directly in the planning, designing and construction of these infrastructure projects. These include engineers from all branches, supervisors, managers, construction labours, etc.
Indirect: Infrastructure is mostly an enabler, a well laid out infrastructure enables other business to flourish and acts as a catalyst to their growth. Examples include setting up of new businesses along newly created roads, setting up of new manufacturing industries due to improved electricity, logistics etc.
Government is spending
Government spending has a trickle-down effect on the economy. Money spent in these huge and capital intensive infrastructure projects is ultimately transferred to contractors, who use it to buy capital goods, pay labour wages, give salaries, etc. This will add significant percentage points to our GDP, in both short and long term as lot of cash is being pumped into the system. How the government manages to fund these projects is a question in itself, but any government spending of this degree has to be welcomed with both hands.
Multiple questions arise as to the time frame, financing, execution, political uncertainties etc. to be faced during execution of the projects. However, I believe that the NIP is very bold and much needed decision in the right direction at the right time and only time will tell the outcome of this very first step of many more to come.