Infrastructure Remonetisation of India

Post By : News Desk
Post Date : August 20, 2019
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“The king shall promote trade and commerce by setting up trade routes by land and by water and market town/ports”––The Arthashastra

Prime Minister Narendra Modi’s image of a decisive leader won him a landslide public mandate in 2019’s general election.

Keeping up with election promise, the Modi government in Union budget of 2019-20 has announced its intent to invest INR 100 lakh crore in infrastructure over the next 5 years, the biggest ever expenditure over infrastructure in the Indian history. But, will it to do the China wonders for India, that is struggling with the slowing economy, lack of trust in investors and poor execution of plans.

In the first term, the Modi government did not aptly push confidence in investors. A report suggests that in Modi’s first term, private companies slowed their spending on manufacturing plants and machinery to a 9.2% rate of annual expansion, and employment growth fell to 1.3%.

“Given the fiscal constraints that leave less room for expanding public investment at the scale required, there is an urgent need to accelerate the flow of private capital into infrastructure,” the economic survey 2019-20 said.

Logistics Insider explores if and how this exorbitant investment plan in infrastructure will be able to curtail logistics cost.

Gaurav Dubey & Prabhatesh Tripathi

Indian economy took a turnaround and mostly beating after the night of November 8, 2016. Especially the business fraternity will never forget this day as demonetisation took place on this date.

It was one of the biggest decisions of Modi 1.0 to unearth black money which overturned several businesses in one shot. With PM Modi back at the helm, the biggest ever infrastructure boost worth INR 100 lakh crore has been announced. So, will it prove to be the gamer changer for his second term?

The Indian economy has been transforming without a pause by leaps and bounds in the past few years. But little was done for comprehensive development of the logistics sector. However, a few steps of Modi 1.0 have changed the scenario to a large extent.

Logistics and infrastructure run parallel and are not even either faces of a coin. Transportation infrastructure and allied services are critical growth engines for propelling India’s rise as an economic superpower with the current set target of 5 trillion-dollar economy.

The economic survey 2018-19 stated that India needs to spend 7-8% of its GDP on infrastructure annually, which translates into annual infrastructure investment of US$200 billion currently.

In 2017-18, China’s fixed asset investment in infrastructure reached $2.6 trillion. China has been increasing infrastructure spending to boost its slowing economy.

India is spending only about US$100-110 billion annually on infrastructure.

The survey said India will need about USD 4.5 trillion in the next 25 years for infrastructure development, of which it will be able to garner about USD 3.9 trillion. Given the fiscal constraints that leave less room for expanding public investment at the scale required, there is an urgent need to accelerate the flow of private capital into infrastructure.

The Global infrastructure outlook shows that the gap between required infrastructure investment and the current trend of investment is expected to be widened over the year.

A year later the Economic Survey of India 2019-20 said “Robust and resilient infra must to create $10 trillion economy by 2032. Drawing lessons from the growth trajectories followed by East Asian economies that experienced long periods of high growth, the centrality of investment as the “key driver” that catalyses the economy into a self-sustaining virtuous cycle supported by a favourable demographic phase.

The survey said “China has relied primarily on savings and investment with consumption decreasing significantly as a share of GDP. China remains an investment-driven economy even today with its investment and savings rates reaching about 45% of GDP even in 2017.”

Bringing private investment in the infrastructure sector is a key to make India a $10 trillion economy by 2030, as fiscal constraints are preventing the increase in fund-flow from the public sector, the Economic Survey 2018-19 had said.

The cautionary words of Rahul Bajaj, Chairman Auto predicted the hurdles India is facing are not different from the government words itself. Bajaj had said “The World Bank has retained its growth forecast for the Indian economy at 7.5% for the ongoing fiscal. “There is no demand and no private investment, so where will growth come from? It doesn’t fall from the heavens.”

As alarms of global market slowdown ring non-stop, the Indian economy is clearly in need of a necessary stimulus. Recently, the International Monetary Fund (IMF) reduced the market growth projections of India from 7.3% to 7% for the current financial year.

With the announcement to invest Rs 100 lakh crores ($1.44 trillion) the Union government led by prime minister Narendra Modi intends to put the logistics sector into overdrive, where India ranks at 79th place in global infrastructure index.

BJP in its election manifesto had promised to invest INR 100 lakh crore on infrastructure by the year 2024. PM Modi, despite a patchy first term, majorly focused on social infrastructure and now the government is treading ahead on its election promise to strengthen the country’s infrastructure.

As alarms of global market slowdown ring non-stop, the Indian economy is clearly in need of a necessary stimulus. Recently, the International Monetary Fund (IMF) reduced the market growth projections of India from 7.3% to 7% for the current financial year.

With the announcement to invest INR 100 lakh crores ($1.44 trillion) the Union government led by prime minister Narendra Modi intends to put the logistics sector into override, where India ranks at 79th place in global infrastructure index.

Strengthening Infra key to curtail logistics cost?

In the current scenario, the logistics sector in India is in a highly unorganised state leading to escalating logistics costs. The union ministry of commerce has been working on reducing the present logistics cost that accounts for 14% of the GDP to less than 10% by 2022.

Modi government has hitherto made a valiant promise of transforming India into a 5 trillion-dollar economy. But its key lies in fewer logistics cost supported by an enabling infrastructure network. The logistics sector, which provides 12 million jobs, deals with 10,000 different commodities and has a market size of $160 billion had been conveniently overlooked in the past many years.

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