[Co-authored with Satadru Sikdar and Richa Jain]
Boosting infrastructure development is a thrust area in the agenda of the present Indian government. The total revenue and capital expenditure in the infrastructure sector as a share of GDP shows a steady increase over the years. The share increased from 0.57% in 2014-15 to 0.73% in 2015-16 and to 0.78% in 2016-17. The Union Budget 2017-18 proposes a further rise in the share to 0.80% of GDP. While the budgetary allocation of infrastructure spending portray an increase over the years, actual benefits will be experienced only when these investments are converted to physical stock of capital, contributing to the gain in productivity, efficiency and quality of life. In this blog we try to relate the two by looking at the budgetary allocation in infrastructure and the pace of actual implementation of projects.
In the Union Budget 2017-18, total budgetary allocation for infrastructure stands at INR 3,96,135 crores. The budget has also proposed several schemes, covering key areas of infrastructure sector, viz., transportation, telecommunication and power. It has given a special focus on railways, focusing on four major areas: passenger safety, capital and development works, cleanliness and financial and accounting reforms. In road transport sector, budget allocation for highways has increased from INR 57,976 crores in 2016-17 (as per Budget Estimate) to INR 64,900 crores in 2017-18. The budget allocation for the transportation sector as a whole is INR 2,41,387 crores, constituting 60% of the total budgetary allocation for infrastructure in 2017-18. In the telecommunications sector, the allocation for Bharat Net Project has been stepped up to INR 10,000 crores in 2017-18, with the aim of enhancing digital network through Optical Fibre Cable Lines covering more than 1,50,000 gram panchayats. For strengthening the energy sector, the budget proposes to set up Strategic Crude Oil reserves. Also, to achieve 100% village electrification by 1st May, 2018, an increased allocation of INR 4,814 crores has been proposed under the Deendayal Upadhyaya Gram Jyoti Yojana.
Against this backdrop, we examine the pace of implementation of projects in public infrastructure sector using CMIE CapEx database. This database provides information on capital expenditure and capacity expansion of investment projects and track their status from announcement of the project, through implementation and final culmination into new capacities. This database contains information on projects since 1996. Using this database, we track the status of central government’s infrastructure projects during 2014-15 to the third quarter of 2016.
The outstanding value of the projects, that is, the cumulative value of the stock of all undergoing projects since 1996, as in the year 2014-15 and 2015-16 as a share of GDP in the respective year, show a moderate increase to 28% and 29% respectively. When we track the status of completion of various projects, we find that the value of completed projects, as a share of GDP shows a sharp increase from 0.39% in 2014-15 to 0.73% in 2015-16, but dropped to the initial level of 0.39% at the end of December, 2016. Between 2014-15 and 2015-16, we also observe a sharp decline in the pace of stalling of projects. The value of abandoned projects as a share in GDP declined sharply from 0.52% in 2014-15 to 0.39% in 2015-16. However, the pace of decline in abandoning of projects shows a levelling off by the end of 2016.
Further, till December, 2016, a total of 165 infrastructural projects under the central government got shelved, stalled or abandoned. Leaving non-specified reasons and cases of unavailable information, land acquisition problem stands out as the most prevalent reason for abandoning projects (14% of total cases), followed by lack of promoter interest (9% of cases), and lack of clearance (5% of cases).
A comparison of the budgetary allocation in the infrastructure sector, and the performance of investment projects in this sector under the central government indicates a clear mismatch in the allocation of fund and the pace of its conversion to the stock of physical infrastructure. To boost this sector, hard work is needed in speeding up the completion of ongoing projects so that benefits from the built up infrastructural stock can trickle into the real sector activities in the economy. As on December 2016, the value of projects completed as a share of GDP is 0.39%, not significantly higher than the value of projects stalled, shelved or abandoned, as a share of GDP (0.35%). The closeness in the pace of completion of projects and stalling of projects calls for creating an ‘infrastructure’ to track and record the status of each of the government’s infrastructure projects on a regular basis, and identify the reasons for delaying/stalling and shelving of projects in order to remove the bottleneck effectively.
Dr. Rudrani Bhattacharya is Assistant Professor, NIPFP. Satadru Sikdar is Research Associate, NIPFP. Richa Jain is Junior Project Associate with the National Institute of Public Finance and Policy, New Delhi.
The views expressed in the post are those of the authors only. No responsibility for them should be attributed to NIPFP.