On 31 December 2019, the Finance Minister of India, Ms. Nirmala Sitharaman, released the report of the Task Force on National Infrastructure Pipeline (NIP) for 2019-25. The aim of the NIP, as per the Task Force, is to outline the ₹100 lakh crore investment into infrastructure that will help to provide the infrastructure services necessary for raising the quality of life and ease of living in India to global standards. This is in line with the announcement on spending ₹l00 lakh crore for infrastructure development made by the Prime Minister Mr. Narendra Modi on 15 August 2019.
Reforms For Growth – The Hallmark Of Modi Government
While there is discussion on the Task Force’s plans and targets under the various identified infrastructure heads, what catches our attention is the section on the necessary structural reforms. Implementing tough and sometimes politically inconvenient decisions has been the hallmark of the Modi government over the past six years. Be it the rollout of Goods and Services Tax; pushing through the Insolvency and Bankruptcy Code; fuel pricing deregulation; or allowing fixed term employment across all sectors – the government has demonstrated will and ability to take decisions to their logical conclusion, and any obstacles are swiftly tackled during implementation. Even the corporate tax rate cuts to bring the Indian tax rates to a competitive level with its Asian peers was a decision that only the Modi government could have undertaken, riding on the back of a strong mandate to continue. Therefore, it is no surprise that the NIP Task Force report sees the potential for roll out of further reforms to enable the achievement of the stated targets within no time.
Tackling Project Delays Through Institutional Reforms
The problem of delays in project implementation has long plagued the Indian economy. As per a 2018 submission to the Parliament by the government, over 300 projects were delayed as of November 2017, with a total cost overrun of ₹1.45 lakh crore. A 2013 KPMG and PMI report for Ministry of Statistics, Planning and Implementation (MoSPI) had highlighted that majority of projects were delayed by factors that can be controlled at the project level through proper planning and project management. This problem gets complicated, as per the report, by the shortfall in skilled professionals for relevant sectors like construction – a shortage of 3 million professionals by 2022 was predicted if the status quo was tolerated.
Having recognized these challenges, the Task Force has recommended steps to institutionalize the project planning processes for smooth execution, and addressing the shortfall in delivery capacity by encouraging greater collaborations and joint-ventures with strong global infrastructure developers. To this end, the government is already undertaking steps to ensure completion of central sector infrastructure projects without time and cost over-runs, such as rigorous project appraisal, OCMS for better monitoring and setting up of revised cost committees in the ministries for fixing responsibility for time/cost over-runs. With the ongoing efforts and the proposed steps, one clearly sees the a will to tackle the problem head-on.
Tackling The Issue Of Contract Enforcement
Another issue that has plagued the Indian economy is contract enforcement. The World Bank’s Ease of Doing Business ranking for India, though seeing overall improvements, has remained stuck on the question of contract enforcement. A key factor affecting it is the complex legal system. Both Bibek Debroy and Sanjeev Sanyal have pointed out distinct issues with the legal system. No one really seems know what these all rules are or even how many exist, to quote Sanyal. Further, the matter was complicated by contradictory state and central laws, since law is a concurrent subject. To that end, the government has over time worked towards reducing the number of statutes. In fact, within three years of the first term, over 1,500 old statutes were repealed.
Clarity on a large number of such laws can be granted by the judiciary; however, it is stuck with backlogs. The judicial system has been unable to cope up with the changing times due to workload, leading to delays. As per the National Judicial Data Grid data on 3 January 2020, more than 70% of all pending cases at the High Court level are non-criminal cases. Given this scenario, the government has been undertaking several steps simultaneously to address this issue. Bibek Debroy and Suparna Jain in 2017 had identified the “need for reforms not only in speeding up dispute resolution, but also having a strong in-country mechanism for out of court dispute resolution.” Debroy and Jain noted how the government in 2015 had passed the Arbitration and Conciliation (Amendment) Act 2015. This helps to reduce the number of cases ending up in courts and ensuring the sanctity of the alternative dispute resolution mechanisms. Similarly, to address even judicial backlogs, the Government of India has been pushing states to fill up vacancies and build necessary infrastructure at the earliest.
Innovations In The Financial Sector
Financial sector reforms have also been identified by the Task Force report. Bond markets have been identified as the way forward for financing infrastructure, while the establishment of Credit Enhancement Fund to mitigate associated financial risk for infrastructure projects. This can help to attract greater investments towards the sector, where investment returns are usually on the long horizon. Moreover, new modes of investments can be created if the proposals of tapping into resources from insurance and pension sectors can be addressed suitably. This also calls for regulatory reforms within the financial sector, clearly showing the continued intent of the government in the days to come.
Several steps towards such initiatives as asset monetization and strategic asset sale have already been taken up. The first pipeline of assets to be monetised by March 2020 have been finalised and options such as Toll-Operate-Transfer (TOT) and InvITs (Infrastructure Investment Trusts) have been initiated by the Ministries of Power, Shipping, Highways and Railways. Further, bond markets and INvITs are being seen as solving the burden of long-term capital borrowing at affordable rates of interest while the bank-NBFC sector gets a breather and regains strength. This is important, as strong financial sector can afford lower cost of lending – in fact, Sanjeev Sanyal has stated that the current clean-up of the crisis in the banking sector will lead to lowering the cost of capital very soon, thus opening up options available. It is important to note that many of these initiatives are already in place, thus setting the backdrop to enable the necessary spending on infrastructure. These suggestions were put forward by NITI Aayog in 2017, when it underscored the need to set up a national infrastructure investment fund alongside raising capital from sectors such as insurance and pension funds, and the endorsement in the NIP report is indicative of the steps that the government will implement them swiftly.
In conclusion, one can clearly see that the NIP’s successful implementation rests on the back of several governance reform steps that are now needed. The government has been bold in undertaking several measures to set things right. Much of the challenges are being addressed continuously from the last term, highlighting the long-term vision of this government when it comes to India’s overall development. The pathway of reforms is being paved at breakneck speed, and India should soon reap the benefits of this structural exercise.