The first paperless Union Budget was presented in these unprecedented times on Monday. Prior to the budget, the government had given indications of this budget being among the best budgets of this century. This had raised the hopes of the citizens as well as the investors. Though the market has zoomed up post the Budget announcements, it has left the common man with a question, Why Infrastructure?
With the budget announcements, the government has indicated that their vision is not for the next six to twelve months. The intention is to achieve the long-term goal of reaching a $5 trillion mark in the next five years. The budget's priority sector was healthcare, which can be clearly understood given the backdrop of the pandemic that the world is facing. The next major highlight in the budget is the importance given to infrastructure development. The importance of Infrastructure in the budget can be understood by the fact that close to fifty percent of the spending is allocated for infrastructure development. FM spoke about the budget being divided into six pillars, but the foundation of all pillars was infrastructure development.
The infrastructure development will be done in all sectors, including healthcare, manufacturing, textile parks, etc. However, major attention was drawn to the National Infrastructure Pipeline. The government's commitment towards the NIP can be understood with the fact that 217 projects worth 1.1 lakh crores were completed during the Covid Period. More than 7,000 projects are still in the pipeline that will be executed in the next couple of years.
Infrastructure development will take place mostly in the form of national highways and road infrastructure, railways expansion, public transport and metros for urban areas, power infrastructure, etc. Along with urban Infrastructure, equal emphasis has been laid on rural Infrastructure by increasing the allocation by 10,000 crores. APMCs will now be able to access the Agriculture Infrastructure Fund to augment its infrastructure facilities. The government is also planning to develop schemes to incentivize the states for spending more on infrastructure creation.
Infrastructure development should not be seen as a measure that only affects the rich. This is a measure that has been successful in reaching out to the lower- and middle-income citizens. The construction work would require labourers, electricians, plumbers, engineers, managers, etc. Thus, the development creates assets for the nation, along with creating job opportunities and generating income
For infrastructure financing, the government has decided to set up a Development Financial Institution for which FM proposed to allocate a sum of 20,000 crores. DFI will provide funds for the Infrastructure and act as a catalyst to attract more investment from private and foreign investors. The government has set a target of a lending portfolio of at least 5 lakh crores for DFI in the next three years' time. The government has also decided to set up special vehicles like InVITs, REITs which will now be open to foreign portfolio investors. Along with this, the asset monetization scheme in the budget is one of the most important tools to fund Infrastructure across the globe.
Dedicated freight corridors of railways, new airports, oil and gas pipelines, sports stadiums, warehouses, NHAI operational toll roads, transmission assets of PGCIL are among the few assets that the government is initially planning to use to attract the required funding for infrastructure development. These three steps, though delayed, were much required to improve the infrastructure financing in the country. India should now move from short-term borrowing for infrastructure development to long-term borrowing for 30-35 years at lower interest rates as done by other countries.
Infrastructure development should not be seen as a measure that only affects the rich. This is a measure that has been successful in reaching out to the lower- and middle-income citizens. The construction work would require labourers, electricians, plumbers, engineers, managers, etc. Thus, the development creates assets for the nation, along with creating job opportunities and generating income. Infrastructure development will lay the groundwork for a Better India, attracting MNCs and foreign investors in India. This will further create jobs and generate income.
The assets created in this process can also be used for the long term to generate resources and income streams for future generations. Infrastructure spending is thus known for having the highest multiplier effect in creating jobs, increasing demand, and generating income. The measures will not reap fruits in the near future but will reflect in consumer decisions in the next few months.
The Union budget 2021-22 is a budget for all as it covers all layers of the economy. The government has decided to accelerate by investing in Infrastructure with a long-term vision of reaching the $5 trillion mark in the next 5 years and the $10 trillion mark by the end of the decade. This measure will boost the GDP in the short term and help in sustainable growth. Thus, we can expect the next couple of budgets to be in the same line with a focus on infrastructure development and capital expenditure.
(The writer is a PhD Scholar in Economics at the University of Hyderabad)