India’s Decisive Investment Push In Infrastrcture To Strength Growth

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In a significant bid to beat the economic slowdown and continuing in its industry-support policy and programmes, the Government on Wednesday unveiled a jumbo plan, envisaging an investment of a huge one hundred lakh crore of rupees in the country’s infrastructure sector over the next five years. Contending that this investment binge of immense magnitude would go a substantial and substantive way in improving the availability and quality of infrastructure, the Union Minister of the Railways and Commerce & Industry Mr. Piyush Goyal asserted that all infrastructure-related sectors encompassing aviation, shipping, roads, highways, railways and ports, besides electricity and oil and gas would get a renewed impetus for rendering the domestic economy efficient in the next five years.


Being the head of the vast rail networks, Mr. Goyal said the Indian Railways has drawn up a 12-year plan involving an investment of 50 lakh crore of rupees which is unprecedented in terms of the amount involved for the medium-term. Rightly he diagnosed that the government alone could not put this sort of humongous investment as it would seek to supplement private investment flows by extending the requisite incentives. He said the government would work closely through the public-private partnership model.

During the last five years, the government has implemented a slew of major reforms in the economy to build the investment climate to kick-start its goal of becoming a five trillion dollar economy by 2024-25. Among the various proactive investment measures was the introduction of Insolvency and Bankruptcy Code in 2016 for cleaning the financial system to strengthen it to face the demands from the stakeholders. Implementation of the Goods & Services Tax (GST) stands out as the solid step for improving the ease of doing business in the country by slashing multiple taxes into a few rates system. Make in India programme is a major milestone for augmenting the indigenous capacity of the country to churn out world-class goods and services.

More recently, the government took the significant step to cut corporate tax rate from 30 per cent to 22 per cent to boost investment activity. Specifically, the corporate tax rate has been cut to 15 per cent for new domestic manufacturing companies, which is now the lowest in the world. This also complemented a cut in the repo rate by 135 basis points during 2019 by the Reserve Bank of India and mandating of banks to link their lending rates with external benchmarks for curtailing the cost of capital for investors so that they could breathe ease while contracting huge loans for productive purposes from the formal banking channels.

It is only on Wednesday that the Union Finance Minister Ms. Nirmala Sitaraman, while replying to a discussion on the state of the economy, hinted that the minimum alternate tax (MAT) and dividend distribution tax were “regressive”, kindling hope that the twin demands of the India Inc. (Incorporated) might find its echo in the forthcoming Union Budget 2020-21. All these measures, both announced and that are on the anvil, conclusively prove that it is a priority with the Government at the Centre to undertake proactive policy booster doses periodically to foster favorable infrastructure for the domestic industry so that they could be competitive in terms of price and quality not only within the vast indigenous market but also stand in good stead to make a mark in the overseas markets.

The government is undoubtedly swayed by the stark fact that the correlation between infrastructure investment and economic growth in the country is very high, as revealed in the Economic Survey. The correlation of investment in inland, road, rail and airport infrastructure to gross domestic product (GDP) are higher than 0.90 indicating that there exists a robust correlation between GDP and investment in infrastructure. This only underscores unmistakably that colossal investment is needed in infrastructure to achieve targeted economic growth, a goal the government is firmly committed to deliver with all the instruments in its arsenals, analysts contend.

Script: G.Srinivasan, Senior Economic Journalist


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