The infrastructure sector has been highlighted by the government agencies and the financial institutions to be a key driver for the Indian economy, propelling India’s overall economic development. Infrastructure development enjoys intense focus from the international financial institutions, bilateral agencies and private investors for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
In the previous years the government has launched several national flagship programs to promote and increase the pace of infrastructure construction. Some of these flagship programs of the government in recent years are – National Infrastructure Pipeline (NIP), National Monetization Pipeline (NMP), Gati Shakti Mission, National Infrastructure Investment Fund (NIIF), National Bank for Financing Infrastructure and Development (NaBFID) along with infrastructure programs for various sector like Bharatmala, Sagarmala, Smart Cities Mission, Inland Waterways, etc.
The push for infrastructure growth in the country has also been reflected in the key budget announcements over the previous few years, with focus on increasing the capital expenditure as the main instrument. However this increased pace of infrastructure projects such as construction of roads, power projects, ports, waterways, etc have led to social and environmental problems across the country from mountains to the coasts. The incidents which have been reported for these geographical reasons have been claimed to have occurred due several of such projects being implemented.
In ecologically sensitive places like the Himalayan region experts have opined that construction of 4-lane highways, tunneling for power projects and rail links have led to the increasing incidents of subsidence and cracks in the mountain slopes. Similarly in places like the coasts where the new ports are being proposed, experts say it would lead to irreparable damages to the coastal and marine ecology. The environmental clearances granted to several infrastructure projects have been questioned and in some instances they have even been exempt from obtaining environmental clearances. Neither forests nor deserts have been left untouched.
In several projects the local communities have been displaced and have faced loss of livelihoods to facilitate the implementation of such large infrastructure projects without adequate compensation and rehabilitation. The people at the ground have been raising their voices about the problems that these projects create. Despite these concerns the projects have gone ahead.
While the mushrooming of a large number of infrastructure projects spanning the length and breadth of the country has been heralded as the key driver behind the economic growth of the country, over the years, various laws related to land acquisition, environment, coastal regulation, forests, etc. have been amended to make them more project oriented and expedite the execution of such projects than ensuring that such laws continue to serve the interest of the local people and environment.
Government financing infrastructure capex
The union budget over a period of previous years has consistently seen a trend to provide a major push to the infrastructure sector through the budgetary announcements.A quick recap of the previous years budgetary allocations are as follows – in FY 2018-19 the Government of India provided a boost to the sector by allocating Rs. 3 lakh crore for capital expenditure. This included allocations to railways, household level electrification scheme, green energy corridor, telecom infrastructure, metro rail systems, highways projects, among others.
In FY 2019-20 too similar announcements were made with an allocation of Rs. 3.39 lakh crore towards capital expenditure. On the similar lines, Rs. 4.12 lakh crore was allocated in FY 2020-21, which was increased to Rs. 5.54 lakh crore in the year FY 2021-22, with allocations made to railways, roads and highways, ports, shipping, waterways and urban infrastructure.
The FY 2022-23 witnessed a massive jump of 35.37% in capital expenditure taking the figure up to Rs. 7.5 lakh crore. In this year’s budget announcement FY 2023-24, capex got another major boost with a 33.42% increase, taking the tally to Rs. 10 lakh crore. Not only capex allocation has been increased in the budget, but its share as a percentage of GDP has also gone up from 2.9% in FY 2022-23 to 3.9% in FY 2023-24. In FY 2021-22, capex allocation was 2.5% of GDP. It is worth noting that not only has there been a staggering jump in the capex figures since the last couple of years, but there is also a visible shift in capex as a percentage of GDP.
The huge levels of capital expenditure allocation should not be seen only in terms of government spending, but it acts as a leverage drawing much higher levels of private investments in infrastructure projects.
In addition to capex related announcements, establishment of a national Development Finance Institution (DFI) was announced to serve as a provider, enabler, and catalyst for infrastructure funding. DFI was allocated Rs 20,000 crore in FY 2021-22 with a view to mobilise Rs 111 lakh crore required for funding of the ambitious National Infrastructure Pipeline where the goal for the DFI was set to have a portfolio of Rs 5 lakh crore in three years.
Main sectors for infrastructure development
The budgetary allocation for Indian Railways in FY 2022-23 stood at Rs. 1,40,367 crore, of which Rs. 1,37,100 crore was for capital expenditure. This resulted in total planned capex of Rs. 2,45,600 crore with Rs 7,000 crore from internal resources, Rs. 1,01,500 crore from extra budgetary resources and Rs. 1,37,100 crore for capital expenditure. In FY 2021-22 Indian Railways was allocated Rs. 1,10,055 crore in the budget, of which Rs. 1,07,100 crore was for capital expenditure. This resulted in total planned capex of Rs. 2,14,858 crore with Rs. 7,500 crore from internal resources, Rs. 1,00,258 crore from extra budgetary resources and Rs. 1,07,100 crore for capital expenditure.Similarly, in FY 2023-24, Indian Railways was allocated Rs. 2,41,268 crore, of which Rs. 2,40,000 crore was for capital expenditure, which is a significant rise of 75.05% in terms of capital expenditure. However, the total planned capex went up by 19.21% to Rs. 2,92,783 crore, with Rs 3,000 crore from internal resources, Rs. 49,783 crore from extra budgetary resources and Rs. 2,40,000 crore for capital expenditure.
In FY 2022-23, the Ministry of Road Transport and Highways was allocated Rs. 1,99,108 crore, which was a massive 40.86% increase from the budget allocation for the previous year at Rs. 1,18,101 crore. The hike of Rs. 81,006 crore was mainly directed towards investments in NHAI, which saw its allocation going up from Rs. 57,530 crore in FY 2021-22 to Rs 1,34,015 crore in FY 2022-23. However, it should be noted that in FY 2021-22, NHAI had planned to raise Rs 65,000 crore through Internal and Extra Budgetary Resources (IEBR) with a total planned expenditure of Rs. 1,22,350 crore.
But for FY 2022-23, NHAI had planned to raise only Rs. 0.01 crore through IEBR. The budgetary allocation for the Ministry in Union Budget 2023-24 saw an increase of 35.82% taking the tally to Rs. 2,70,435 crore, with capital expenditure allocation of Rs. 2,58,606 crore. For FY 2023-24, NHAI has got a budget support of Rs. 1,62,207 crore, though there is no contribution of IEBR component.
It is worth noting that these two ministries alone have garnered close to 50% of capex allocation of the total budgetary allocation for capital expenditure for FY 2023-24.
For FY 2022-23, Ministry of Housing and Urban Affairs saw a budgetary allocation of Rs. 76,549 crore, in which capex component was Rs. 27,341 crore. In the Union Budget 2023-24, the budgetary allocation was similar at Rs 76,432 crore, in which the capex component was Rs. 25,997 crore. It should be noted that the Budgetary Allocation for “Urban Rejuvenation Mission: AMRUT and Smart Cities Mission” was at Rs 16,000 crore in this year’s budget and it was Rs. 14,100 crore in FY 2022-23 Union Budget.
For the Ministry of Ports, Shipping and Waterways the total budgetary allocation in Union Budget 2023-24 stood at Rs. 2,219 crore in which capital expenditure component was Rs 1,068 crore. For the year 2021-22, the total budgetary allocation Rs. 1,709 crore in which capital expenditure component was Rs. 574 crore. While it may appear that the budgetary allocation for this ministry is relatively small compared to Railways and Roadways, but it is also a reflection that ports and shipping sector is more reliant on private investments for expansion.
Increasing overall capital expenditure reflects the vigorous attempts by the government to attract private sector participation in various sectors for project execution and operation.
IFI financing and recommendations for infrastructure
Apart from the national financiers and budgetary allocation, international financial institutions play a major role in influencing policies and supporting infrastructure development in the country. In the past institutions like the World Bank and Asian Development Bank have been instrumental in shaping the development paradigm in the country as well as financing infrastructure projects directly or through development policy loans and technical and financial advisory are supporting development of policy and structures that will support infrastructural development.Currently, the World Bank has US$ 23.3 billion worth of projects active in India. Of this US$ 3.39 billion is in the transportation sector which includes investment in national and state highways, waterways. Around US$ 3 billion of active projects are in the water sector, which include hydro power projects, dam rehabilitation, water supply, sanitation, river basin, flood recovery projects. Along with this, close to US$ 3.7 billion is in the energy sector which includes support for renewable energy projects, transmission and distribution lines, energy efficiency, hydro, grid connectivity projects.
Though there is no direct support for coal projects, associated facilities are funded through transmission and distribution projects. The World Bank also has close to US$ 2.89 billion in the agriculture, fishing and forestry sector. Over the decades the World Bank has not only provided financing for the projects but has also provided policy prescriptions through technical assistance, loans and development policy lending. Through these loans over the years there has been promotion of public-private partnerships and privatisation in the public utilities sector.
Also, Asian Development Bank has close to US$ 57.65 billion worth of projects active in India. The transport sector has the highest share of US$ 18.85 billion worth of active investments which include highways, metro rails, public private partnerships in road projects, industrial connectivity projects, multimodal and integrated logistics ecosystems etc. There are close to US$ 14.72 billion of active investments in the energy sector which mainly include renewable energy investments, energy efficiency, distribution and transmission, grid connectivity, power sector investments in select states and industrial corridors.
Also, the water and urban infrastructure and services sector has US$ 6.51 billion worth investments which include urban and municipal development projects, water supply, blue loan and water projects. Through its loans and technical assistance ADB has been instrumental in promoting public private partnerships in multiple sectors in India.
Also currently International Finance Corporation (IFC) has US$ 7.1 billion worth of active projects in India. This includes loans, equity investments, transaction advisory for public private partnerships and financial intermediary investments in the infrastructure sector. The kind of private sector mega solar renewable energy, roads and highways, green infrastructure, housing, water services, urban projects, etc.
As per the World Bank, most governments don’t have the resources needed to fully finance their infrastructure needs, which makes private sector participation essential. To implement this approach the World Bank came up with strategies such as Billions to Trillions followed by Maximising Finance for Development (MFD). Billions to trillions strategy means – to go from billions in official assistance to trillions in investments, willingness to collaborate through creative partnerships, innovative financing solutions, knowledge, and convening power to catalyze and crowd-in trillions of public and private sector dollars.
Similarly, MFD is conceptualised as the private sector playing a substantially bigger role, both as a financier and as a source of knowledge, expertise, and innovation that can yield transformative solutions. It aims to address binding constraints and unlock opportunities for the private sector to play a bigger role in development.
The issue of grant of Environmental Clearances to mega-infrastructure projects
The manner in which various infrastructure projects, especially the mega-infrastructure projects, have been accorded environmental clearances (or have been altogether exempted) is a matter of concern in the times when a large number of these projects carry huge environmental risks in the regions where these projects are being implemented. If one goes by the available data, out of the 2,592 proposals received by the Ministry of Environment, Forests and Climate Change (MOEFCC) for environment clearance between July 2014 and April 24, 2020, it had approved 2,256 proposals, which comes to a clearance rate of 87 per cent. It should also be noted that out of these proposals, 270 projects have been in and around biodiversity hotspots and national parks.There are also instances where infrastructure projects have been given exemption from obtaining Environmental Clearance altogether, overlooking the damages caused to the environment through such projects. For example, solar or wind energy projects, such as solar parks do not require any Environmental Clearances as per EIA notification 2006. Similarly, all Railway Projects, without an exception, are totally exempted from seeking Environmental Clearance under Government regulations, which dilutes the presence of such safeguards in the first place.
This also raises the fundamental question whether Environmental Clearances are playing a crucial role in protecting the environment or is it just being used as an enabler for giving a go ahead to the projects.
India’s protected areas are also not left untouched by infrastructure and developmental projects, which include several linear infrastructure projects such as railways, roadways, transmission lines, canals, etc. which create an irreversible damage to precious flora and fauna in these ecologically fragile areas. As per the data provided by Parivesh portal of MOEFCC and IndiaSpend website, a total of 225 developmental projects had been given clearances between the year 2015 and 2019, which are located within the range of 10 kms of designated protected areas, including some of the projects located within the boundaries of protected areas.
These projects are related to mining, construction projects (residential and industrial), infrastructure projects, manufacturing units, chemical plants, etc. Similarly, over the years, the statutory body National Board for Wildlife (NBWL) has given a go ahead to several projects in protected areas. The NBWL gave wildlife clearances to 680 projects between 2015 and 2020, according to the answer given in Rajya Sabha by the environment ministry in September 2020. The Standing Committee of the NBWL met 23 times between 2015-16 and 2019-20 during which it granted clearance to these 680 projects.
Delays in implementation
According to a report of January 2022 released by the Ministry of Statistics and Programme Implementation, a large number of infrastructure projects entailing investments of Rs 150 crore or more were facing cost overruns and delays due to various factors. Among 1,671 such projects 443 projects reported cost overruns while 514 projects were delayed. Put together, these projects reflected a total cost overrun of Rs 4.45 lakh crore. The average time overrun in these projects was estimated to be 46.23 months.Similarly, according to the Ministry’s report from November 2022, out of 1,476 projects, 364 projects faced cost overruns of Rs 4.52 lakh crore and a total of 756 projects were delayed with an average delay of 42 months. The factors cited for time overrun by various project implementation agencies included delay in land acquisition, delay in obtaining environment and forest clearances and law and order problems, along with delay in tie-up for project financing, lack of infrastructure support and linkages and delay in tendering, ordering and equipment supply. The delay in project implementation (often resulting in cost overruns too) is also a reflection of the opposition faced by such projects at the ground level by the project affected communities, due to lack of consultations with local communities, which is often overlooked by the project proponents.
Questions and concerns remain unaddressed
While the government takes huge pride in having a slew of mega-infrastructure projects across the length and breadth of the country and keeps on stressing the importance of such projects for national development, it is critical to have proper due diligence regarding social and environmental impacts of these projects in consultation with the local communities. Environmental and social safeguards frameworks have also been advocated for financial institutions financing such projects. These are the kinds of measures that are important to ensure the long term sustainability of the projects, the local ecology and the communities.In addition it is crucial to ensure proper rehabilitation and resettlement of the local people giving full consideration to the varied aspects of their lives and livelihoods, going ahead with the implementation of the projects. In several projects it has been documented that the major points of delay in implementation are land acquisition and contestations by the local communities due to lack of genuine consultations with them on these issues.
The delays in project implementation leads to cost-overruns of the projects and this results in impacting the financial viability of these large projects already riding huge investments from the public sector. The delays and cost overruns of infrastructure projects puts a strain on the financial institutions and several of these projects may result in NPAs, putting the public money at risk. With the pace of building infrastructure projects increasing and the sector attracting a lot of attention, these on-the-ground concerns also need attention and should be addressed to ensure that the projects are beneficial to all in the true sense.
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Source: Centre for Financial Accountability
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