Preparing for an infrastructure push

The NIP Task Force has asked for a 21 per cent increase in government spend on infrastructure in 2020-21

In releasing the report of the Task Force on the National Infrastructure Pipeline (NIP) for 2019-25 at a press conference on the last day of 2019, Finance Minister Nirmala Sitharaman sent out two important messages. One, she made it clear that she had no problem in meeting the media just about a month before presenting the Union Budget for 2020-21. Two, given the state of the economy, she saw no reason to delay any further in letting the nation know what a group of senior government officials had recommended to revive investment in the infrastructure sector.

Finance ministers and the finance ministry usually stay out of bounds for the media in the run up to the Budget. It is rare that anyone in the finance ministry, let alone the finance minister, holds a press conference when only about four weeks are left for the Budget to be presented. There are concerns over Budget confidentiality and all necessary steps are taken to maintain secrecy over what the government plans to announce in the Budget. Hence, press conferences about a month before the Budget are avoided. The only justification for holding it now would have been to send out a signal to everyone that the government was serious about the need to invest more in the infrastructure sector.

In the process, however, the report of the NIP Task Force may have dropped a few significant hints about the kind of Budget that the government was likely to present on February 1. For instance, the Task Force estimates that the nominal growth of gross domestic product (GDP) in 2019-20 will be about 8 per cent, sharply down from the earlier estimate of 12 per cent. In nominal terms, GDP in 2019-20 is projected at Rs 205.37 trillion, compared to Rs 190 trillion in 2018-19. What’s more, nominal GDP, according to the Task Force, is expected to grow by 10.5 per cent in 2020-21 and by 12 per cent in 2021-22.

Remember that the Task Force is headed by Economic Affairs Secretary Atanu Chakraborty, with the NITI Aayog CEO and other secretaries in the finance ministry as well as other administrative ministries as members. Don’t those numbers then give you a broad idea of the prevailing economic growth scenario in which the Budget for next year is being formulated? Everyone knows that economic growth is slowing, but nobody in the government,until the release of the report, had stated that the 2019-20 nominal growth would be just 8 per cent, with an obvious adverse impact on the government’s tax revenues.

The report of the NIP Task Force also reveals what the next Budget could do for the infrastructure sector. The Union government’s gross budgetary support for the infrastructure sector in 2018-19 was estimated at Rs 1.39 trillion, which was about 44 per cent of the government’s total budgetary support for all capital expenditure under different heads. In 2019-20, the share of budgetary support for infrastructure in the gross budgetary support for total capital expenditure was 45 per cent, or about Rs 1.53 trillion. The Task Force has put the required figure for budgetary support for infrastructure in 2020-21 at Rs 1.86 trillion. If the share of 44-45 per cent is maintained next year as well, then the Union government’s gross budgetary support for capital expenditure should go up by 22 per cent to Rs 4.13 trillion. Any increase that is lower than 22 per cent, therefore, would imply that the finance ministry has not accepted the report of its own committee.

The NIP Task Force also notes that the government’s total outlay for the infrastructure sector should go up from Rs 3.77 trillion in 2019-20 to Rs 4.58 trillion, an increase of 21 per cent. This will be an ambitious goal as the total outlay for the infrastructure sector in 2019-20 had increased by only 6.5 per cent.

The share of total government outlay for infrastructure in the government’s total capital expenditure (including internal and extra-budgetary resources of public sector undertakings including the Indian Railways) has hovered between 38 and 43 per cent. If this share is maintained in 2020-21, then the Budget for next year has to provide for a 21 per cent increase in the government’s total capital expenditure to Rs 10.65 trillion.

All these numbers suggest that the NIP Task Force has been quite aggressive in asking for a sharp increase in the allocation of government funds for the infrastructure sector in the coming year. Can the government afford to ignore the demand for higher financial outlay for the infrastructure sector? And was the decision to release the NIP Task Force’s report at a news conference, just days before the Budget, aimed at putting more pressure on influential sections within the government to accept the need for spending more and easing the fiscal consolidation targets?