With BJP and Congress promising big infrastructure projects ahead of the upcoming general election, the private investment has surged in the March quarter. The ruling party and the principal opposition have promised to overhaul the infrastructure of the country if they came to power. Given the promise, the private investors expect that there will huge infrastructure push irrespective of the party comes to power after 2019 general election. BJP promised 144 lakh crore rupees investment in next five years if the party comes to power. As the scope for government is limited, the money will be sourced from private players and this boosted the confidence of financers.
In the March quarter, the total loan given for infrastructure projects was 52000 crore rupees compared 14400 crores in the previous quarter. This is the highest loan to infrastructure project since 2011. The private players expect a moderate return from infrastructure projects but the money is secure given the government backing. “The pipeline for infra projects is expected to rise after the elections, with many projects likely to be funded by the private sector,” said Vishal Kotecha, associate director for infrastructure and project finance at India Ratings & Research. “Airports are undergoing significant expansion in capex, which would give an impetus to new financing.”
The big-ticket infrastructure projects in the pipeline are a new airport in Navi Mumbai, railway modernization, dedicated freight corridor, expansion of Delhi and Mumbai metro. The Modi government aims to take GDP growth to double digits and removing the bottlenecks of poor infrastructure is essential for that. Countries like China had achieved double-digit GDP growth for decades through big-ticket infrastructure at home and around the world. More than a quarter of Chinese GDP is directly or indirectly related to infrastructure. India wants to repeat the Chinese growth story through infrastructure development.
The central government’s spending on infrastructure increased exponentially under the Modi government. In the first year, the government allotted only 1.81 lakh crore rupees for infrastructure and this increased to 5.97 lakh crore rupees in 2018-19. The spending increased by more than tripled in the last five years with total spending 19.36 lakh crore rupees but the ambitious target set by BJP in the manifesto (144 lakh crore rupees in next five years) could not be met without private investment.
The money will come from bank loans, foreign capital, insurance and pension funds, and bond market. The increased private investment is a good sign for the economy and the infrastructure initiatives. This also shows that the investors are confident that Modi government will come back to power with a majority.
Infrastructure has been a priority for the NDA government in the last five years. It has made a significant investment in public transport, highway construction, railways, water transport, and air connectivity. The large public investment in infrastructure was supported by oil bonanza which government got in its initial years due to the slump in crude prices. There has been a very low investment in the road construction sector by the UPA government because various welfare programmes like MGNREGA had constrained the government from financing infrastructure building. The last big push in road development was in NDA-1 government led by former Prime Minister Atal Bihari Vajpayee. The two big infrastructure projects, Golden Quadrilateral Network and Pradhan Mantri Gram Sadak Yojna (PMGSY), were started during this time.