Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government. Numerous initiatives have been taken to facilitate infrastructure projects across the country at centre as well as at state level.
Current Scenario of Infrastructure in India?
- Infra-Deficit India: India has the second largest infrastructure deficit in the world (after Brazil) as it has grown at a rapid pace of over 6% since the early 1990s without commensurate increase in supply.
- Only 5% of the infrastructure needs of Indian cities are currently being financed through private sources.
Significance of the Sector?
- Infrastructure sector acts as a catalyst for India’s economic growth as it drives the growth of the allied sectors like townships, housing, built-up infrastructure and construction development projects.
- Global investors have started to view India as one of their top destinations for infrastructure projects. India offers a higher rate of return on infrastructure projects, given its youth bulge, rise of the middle class, and a huge domestic market.
Related Initiatives Taken by Government?
- The government has launched the National Infrastructure Pipeline (NIP) for the period FY 2020-25 for supporting development of infrastructure, urban infrastructure being one of the key focus areas.
- The Government also launched the ambitious Gati Shakti scheme with the aim of coordinated planning and execution of infrastructure projects to bring down logistics costs.
- The National Investment and Infrastructure Fund (NIIF) is a government-backed entity established to provide long-term capital to the country’s infrastructure sector. It was set up in December 2015 as a Category-II Alternate Investment Fund.
- In November 2021, India, Israel, the US, and the UAE (I2U2) established a new quadrilateral economic forum to focus on infrastructure development projects in the region and strengthen bilateral cooperation.
- In March 2021, the Parliament passed a bill to set up the National Bank for Financing Infrastructure and Development (NaBFID) to fund infrastructure projects in India.
Issues with Infrastructure sector?
- Sector needs long-term financing, but banks are powerless to provide it. The absence of long-term financing is one of the main reasons why Indian infrastructure is still not at the expected level. This is despite the fact that in 2015, 10.4% of bank financing went into infrastructure.
- But as of late, non-performing assets and stressed assets, which total about 4.5 percent and 11 percent, respectively, are putting tremendous pressure on Indian banks, particularly the public sector banks.
- As a result, the banks have been compell o remain in a shell and refrain from investing in long-term financing portfolios and projects with lengthy gestation periods.
- The government of India announced the creation of the National Investment and Infrastructure Fund in the 2015 budget in response to this financial scenario.
- The NIIF will provide funding for a longer window of 20 years or more through its pass-throughs, including the National Housing Bank and the IRFC.
What Measures can be taken to Strengthen the Infrastructure Sector?
- Ensuring Consistency in Policy/Regulatory Framework: Lack of consistency and policy coherence across different government departments should be address as a priority.
- Reasonable User Charges : Necessary for augmenting infrastructure financing
- Autonomous Regulation of Infrastructure: As India and the world opens up more sectors to private participation, the private sector would essentially demand autonomous infrastructure regulation.
- Utilising Domestic Funds: Domestic sources such as India Pension Funds which have been lying dormant could give a big boost to the sector if utilised efficiently.
- Leveraging Global Leadership: The Indian G20 presidency is an occasion for India to set the infrastructure agenda for itself and the world.
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