Appropriate investments in infrastructure will advance the three aspirations that the finance minister laid out and no one can take exception to it: improving people’s lives by providing better access to healthcare, education and livelihoods; more equitable economic development with a greater role for the private sector; and the creation of a more caring society.
The budget consequently lays emphasis on upgrading the stock of physical, digital, as well as social infrastructure — ranging from energy to transportation, logistics, urban assets, provisioning of water, healthcare, education, and rural agricultural markets. A series of initiatives has been announced highlighted by the proposed investment of over ₹100 lakh crore in around 6,500 projects cutting across sectors under the aegis of the National Infrastructure Pipeline.
Accordingly, the budget proposes a package of measures ranging from tax benefits for sovereign wealth funds, tax relief for investment in sectors like energy, and enlarged avenues for recourse to non-banking funding.
The proposal to exempt sovereign wealth funds from tax on interest, dividends and capital gains from debt and equity investments in the sector can boost investment. The three-year lock in envisaged for such investments is appropriate considering the typical time-frame of investments in this sector. The concessional tax rate of 5% available on interest paid to non-residents on long-term infrastructure bonds, which was due to expire this year, has been extended until July 2023. This would facilitate debt funding of infrastructure projects from overseas investors.
Reviving investment inflows will also require a series of confidence -building measures like ensuring policy stability, re-calibration of risk-allocation policies to the private sector, and reliably functioning contract enforcement procedures, which the budget appears to promise. Importantly, the budget attempts to broaden the horizons of PPP by inducting new sectors like healthcare, agricultural cold chains, smart cities, and ports. Re-crafting the policy and regulatory architecture around PPPs along the lines of the recommendations of the Kelkar committee is urgently needed to enhance private investment.
The cost of logistics in India is a drag on competitiveness. A National Logistics Policy was announced, to delineate clear roles and responsibilities for governments and regulators. The creation of the single-window e-logistics marketplace will address the need to smoothen transactional process friction for industry and agricultural produce. These reform measures should lead to efficiency benefits, particularly for agricultural products and the MSME sector, which are such critical generators of employment. The enhanced outlay of ₹1.7 lakh crore for the transportation sector will also help attain these outcomes.
The creation of infrastructure currently demands a variety of skills going beyond traditional construction approaches, since structures and assets must be in harmony with the local physical and social environment, more resilient in the face of climate related stresses, and more infused with intelligence provided by digital technologies and the Internet of Things. The special thrust on creating infrastructure-focused skill development opportunities through agencies like the National Skill Development Agency is therefore a very welcome development.
Considerations of infrastructure often tend to disregard the increasingly compelling need to conserve and protect India’s priceless legacy of natural infrastructure. The need to improve air quality in cities has never been more compelling, for reasons that transcend public health concerns, even impacting areas like inward investment. The plan to invest ₹4,400 crore for improving air quality in cities with populations exceeding 1 million under the National Climate Action Plan is therefore notable.
In the short term, infrastructure investments will spur job creation in asset building, upkeep, and utilisation. In the longer term, improved logistics and reduction in process barriers and delays for industry and especially the MSME sector will enhance productivity and competitiveness. The benefits will be seen in income levels, particularly in agriculture; access to healthcare and education, and reduced inequality in regions where the situation is particularly acute.
Effectively implemented, the proposals and pronouncements related to infrastructure can serve as a timely tonic to help stimulate the economy and enhance national competitiveness.
( A version of this article appeared in The Economics Times on Feb 03, 2020)