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PM Modi needs rivals' help to meet $3 trillion infrastructure target

Bloomberg | Updated on November 27, 2019 Published on November 27, 2019

Prime Minister Narendra Modi . File photo   -  PTI

Unless the States contribute nearly 50 per cent of infrastructure investments, India’s build-out momentum could taper sharply

Prime Minister Narendra Modi must invest trillions of dollars on roads and other critical infrastructure if he is to pull the economy out of its slump, with at least half coming from provincial governments that are out of his control.

India will need to spend Rs 235 lakh crores ($3.3 trillion) on infrastructure over the coming decade to return economic growth rates to more than 7.5 per cent, according to CRISIL Infrastructure Advisor. “That means the Indian states will have to more than triple their contributions from the current decade,” it said.

With private investments tepid in recent years, and fiscal limitations on central spending, states will need to step up contributions from about 41 per cent now, Sameer Bhatia, President of the S&P Group company, said in the report published on Tuesday.

Also read: States need to raise infrastructure spending to Rs 110 lakh cr over next decade: Crisil

Unless the States contribute nearly 50 per cent of infrastructure investments, India’s build-out momentum could taper sharply.

That is easier said than done. Indian states, too, have deteriorating public finances. Some, like the richest state of Maharashtra, face political uncertainty after Modi’s party fared worse-than-expected in elections this month and no party won a clear majority.

As slowing growth and continued infrastructure spending are likely to keep state-level deficits elevated, we expect the Central Government will continue to face challenges in achieving its fiscal consolidation targets, Gjorgji Josifov, an analyst at Moody’s Investors Service, wrote in a report published on Wednesday.

Earlier this month the rating agency cut India’s credit rating outlook to negative, citing a litany of problems including a worsening shadow banking crisis and a prolonged economic slowdown.

CRIISL recommends that frontrunner states such as Maharashtra and Gujarat must attract more private investments to counteract a probable slowdown at recent high spenders including Rajasthan and Uttar Pradesh.

Power transmission and the highway sector remained the most attractive infrastructure assets for investors in 2019, while renewable energy was dragged down by tariff caps, according to CRISIL’s report.

Published on November 27, 2019
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