Estimates indicate that Bharat’s economy is expected to grow at 9.2 per cent in 2021-22 after contraction in 2020-21. This implies that we are on the path of recovery marching towards economic growth.  The Economic Survey states Bharat’s GDP is projected to grow in real terms by 8.0-8.5 per cent in 2022-23, assuming global supply chain disruptions will steadily ease over the course of the year and the oil prices will be in the range of US$70-$75/bbl. Some of the positive developments in our economy are as under:

• Total Consumption is estimated to have grown by 7.0 per cent in 2021-22 supported by government spending.
• Gross Fixed Capital Formation exceeded pre-pandemic levels due to stepping up the public expenditure on infrastructure.
• During April- November 2021, the capital expenditure has grown by 13.5 per cent (YoY) and 28 per cent over April to November 2019, with focus in infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs.
• Capital expenditure registered a YoY growth of 26.5 per cent in 2020-21 (Provisional Accounts i.e., PA), as it increased from 1.6 per cent of GDP in 2019-20 to 2.2 per cent of GDP in 2020-21 PA. This trend of increase in capital expenditure expected to continue in 2021-22 BE to reach a budget estimate of Rs.5.54 lakh crore i.e., 2.5 per cent of GDP. This works out to a growth of 34.5 per cent and 30.5 per cent over 2020-21 BE and 2020-21 PA, respectively. As a proportion of total expenditure, capital expenditure has been estimated to increase from 12.1 per cent in 2020-21 PA to 15.9 per cent in 2021-22 BE.
• Apart from budgetary spending, Extra Budgetary Resources (EBR) have also been mobilised to finance infrastructure investment since 2016-17. Government has raised EBRs of Rs. 6.04 lakh crore from 2016-17 to 2020-21, of which Rs. 1.43 lakh crore have been mobilised from the issue of Govt. fully serviced bonds and Rs. 4.61 lakh crore have been raised through financial support extended through loans from National Small Savings Fund (NSSF).

Capital Expenditure (INR Crs)

As the above data indicates there is a 24.5% increase in FY23 as against the BE in FY22 towards capital expenditure. This increase in capex is primarily driven by Rs. 1 lakh crores allocation towards a 50-year, interest-free loan to states, to undertake capex over and above their borrowing limits.  Excluding this Rs. 1 lakh Crs, 50 -year interest free loan to states the effective increase in the capital expenditure is only around Rs. 47,535 Crs .

While headline capex has jumped from 2.6% of the GDP in FY22 RE to 2.9% in FY23 BE, if one excludes the above-mentioned RS. 1 Lakh Crs it will be only 2.58% of GDP in FY23 which is marginally lower than FY22! Similarly, the total capex (including PSU capex) has in fact reduced to 4.7% of the GDP compared to pre-pandemic 3-year average of 4.9% of the GDP.

National Infrastructure Pipeline

Under the NIP the total capital expenditure in infrastructure sectors in Bharat during fiscals 2020 to 2025 is projected at ~Rs 111 lakh crore with the funding pattern envisaged as under.

Centre 39%- Rs. 43.29 Lakh Crs

States  40% – Rs. 44.40 Lakh Crs

Private 21% – Rs. 23.31 Lakh Crs

Total            – Rs. 111.10 Lakh Crs 

The National Infrastructure Pipeline covering 6835 projects was expanded to 7400 projects in Budget 2021-22. In order to unlock the domestic manufacturing potential across sectors, such as renewable energy, heavy industry, agriculture, automotive and textiles, Budget 2021-22 launched PLI schemes (Production Linked incentive Scheme) for 13 sectors, with an outlay of Rs.1.97 lakh crore, for a period of 5 years starting from 2021-22. All these initiatives are expected to collectively generate employment and boost output in the medium to long term through multiplier-effects.

National Monetisation Pipeline (NMP) has been developed by NITI Aayog, in consultation with infrastructure line ministries, based on the mandate for ‘Asset Monetisation’ under Union Budget 2021-22. NMP estimates aggregate monetisation potential of Rs 6.0 lakh crores through core assets of the Central Government, over a four-year period, from FY 2022 to FY 2025.

Roads, Transport and Highways, Railways, Power, Pipeline and Natural Gas, Civil Aviation, Shipping Ports and Waterways, Telecommunications, Food and Public Distribution, Mining, Coal and Housing and Urban Affairs are the various infrastructure sectors that are identified for the NMP.

The strategic objective of the programme is to unlock the value of investments in brownfield public sector assets by tapping institutional and long-term patient capital, which can thereafter be leveraged for further public investments.

The aggregate asset pipeline under NMP over the four-year period, FY 2022-2025 indicatively valued at Rs 6.0 lakh crore corresponds to 14% of the proposed outlay for Centre under National Infrastructure Pipeline (NIP) estimated at Rs 43 lakh crore.

Assumptions

• The potential value assessed under NMP is only an indicative high- level estimate based on thumb rules with the actual realization for public assets depending on the timing, transaction structuring, investor interest etc.
• The assets and transactions identified under the NMP are expected to be rolled out through a range of financial instruments that include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment Trusts (InvIT) among others. The choice of instrument will be determined by the sector, nature of asset, timing of transactions (including market considerations), target investor profile and the level of operational/investment control envisaged to be retained by the asset owner etc.

Challenges

• Realization of the potential value assessed under NMP depends on market conditions and it could be much lower due to the setback to the country’s economy caused by the Covid pandemic.
• The government’s track record in executing the central sector’s projects is not impressive and very much known for time and cost over runs.  According to a recent report (September, 2021) by Ministry of Statistics and Programme Implementation (MOSPI), for the 1,873 ₹150-crore-plus central sector projects currently underway, the total anticipated cost is Rs.27.98 lakh Crs as against the total original cost Rs. 23.43 lakh Crs thereby resulting in total cost escalation of ₹4.55 lakh crore! 

As can be seen from the above, the government’s ambitious plan of unlocking the value of investments in brownfield public sector assets and leveraging the same for further public investments will have two major hurdles, viz., issues in valuation and time and cost overruns in execution of the proposed new infrastructure projects.  Therefore, the government has to put in place proper systems and controls to address the challenge of time and cost overruns in executing the projects.

As part of a multi-layer institutional mechanism for overall implementation and monitoring of the Asset Monetization programme, an empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted.

CGAM should be empowered with single window clearance for all the required approvals for implementation of the projects so that the issue of time and cost overruns can be controlled effectively. Otherwise, the National Infrastructure Pipeline will only remain a pipe dream.

Let us hope the government will take the necessary steps in this regard so that these capital expenditure initiatives will result in asset creation, giving the required boost to the economy to sustain the economic growth on long term basis.