India to face $526 billion infrastructure investment gap by 2040: Economic Survey

The Economic Survey says the infrastructure investment gap needs to be filled by private investments along with support from global institutions. Photo: Mint

New Delhi: India will face a $526 billion infrastructure investment gap by 2040, according to the latest Economic Survey.

Monday’s revelation comes in the backdrop of India’s ambitious plans to bankroll a new integrated infrastructure programme that involves building roads, railways, waterways and airports.

There are 1,263 projects in progress across sectors such as power, road, railways, shipping and telecom.

“Around US$4.5 trillion worth of investments is required by India till 2040 to develop infrastructure to improve economic growth and community well-being. The current trend shows India can meet around US$3.9 trillion infrastructure investment out of US$4.5 trillion,” the Survey said.

The main reasons behind the infrastructure investment shortfall, it said, were the collapse of public private partnerships (PPP), stressed balance sheets of private companies and problems with land and forest clearances.

India needs funds for ambitious plans such as Sagarmala (ports) and Bharatmala (roads) to improve its transport infrastructure.

While the total investment for Bharatmala is estimated at Rs10 trillion—the largest ever outlay for a government road construction scheme—another Rs8 trillion of investments will be needed for Sagarmala until 2035.

The Survey said the gap needs to be filled by private investments and the National Infrastructure Investment Bank (NIIB), along with support from global institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank.

In 2015, the government set up the National Investment and Infrastructure Fund with an initial targeted corpus of Rs40,000 crore, of which a sum of Rs20,000 crore was to be invested by the government.

The remaining Rs20,000 crore was to be raised from long-term global investors, including sovereign wealth funds, insurance and pension funds and endowments.

Experts believe that innovative financial solutions are the need of the hour.

“With a burgeoning urban population that is expected to be roughly half of the total population by 2031, and the expected scorching pace of growth, it is not surprising that the survey identities more than half a trillion dollar as the infrastructure investment gap by 2040. India would need to find innovative mechanisms to attract investments into infrastructure to sustain its growth,” said Jaijit Bhattacharya, infrastructure and government services partner at KPMG consultancy.

The Survey also called for encouraging ship-building and manufacturing, given India’s strategic location along international trade routes.

Another area the Survey pitched for was India’s $160 billion logistics sector, which, it said, needs to be improved because of its impact on improving competitiveness in the wider economy. India has been grappling with high logistics costs of 16-18% (of the cost of a product), which make exports uncompetitive when compared with those of China, where these costs make up 8-10%.

“Improving logistics sector has huge implication on exports and it is estimated that a 10% decrease in indirect logistics cost can increase 5-8% of exports. With the implementation of goods and services tax (GST), the Indian logistics market is expected to reach about US$ 215 billion in 2020, growing at a CAGR (compound annual growth rate) of 10.5%,” the Survey said.

India also plans to set up 35 multi-modal logistics parks at an investment of Rs50,000 crore and develop 50 economic corridors.

The Survey said there was a greater demand for roads than for railways, shipping and inland waterways.

Also, there has been an improvement in the Indian Railways’ freight traffic, with the national carrier transporting 558.10 million tonnes (mt) of revenue earning freight traffic in 2017-18 (up to September 2017) as against 531.23 mt during the corresponding period in 2016-17.