Time to step up investment in infra: Economic Survey

A lot has been done, and a lot is yet to be done. That sums up what the Economic Survey for FY18 says about infrastructure sector.

"In order to ensure high and sustainable growth, there has been a substantial step up of investment in infrastructure mostly in transportation, energy, communication, housing and sanitation and urban infrastructure. Enhanced investment in infrastructure sector will certainly help in creating jobs," said the report card on the economy placed before the Parliament on Monday.

However, when you take time to read the Economic Survey carefully, several sore points stick out.

Investments in creating fixed assets or fixed capital formation as a percentage of GDP has been on a long-term downward slide from a peak of 35.6% in 2007 to 26.4% in 2017.

Trend of declining fixed investment rate needs to be reversed at the earliest to realise the potential growth of over 8% GDP growth in the years to come, the document cautions.

"The first advance estimate of FY18 suggests that although the growth rate of fixed investment is expected to improve to 4.5% from 2.4% in FY17, the fixed investment rate would continue its declining trend," it said, while pointing out that recent pick up in fixed investment can be expected to maintain momentum with considerable progress in roads, railways, metro rail, shipping, civil aviation, power and logistics.

But fresh fixed investment and its growth remains a key concern.

Share of fixed investment dropped from 34.3% of GDP in FY12 to 27.1% in FY17. While growth would be better in FY18, pointing to some recovery in investment, it would still not be high enough to prevent a further reduction in the share of fixed investment in GDP, the definitive document on economic activities cautions.

Gross capital formation as a share of GDP fell sharply between FY12 and FY16 on account of factors like difficulties in acquiring land, cumbersome environmental clearances and infrastructure bottlenecks. Although many of these problems have been addressed, the fixed investment rate hasn't picked up in tandem.

Most infra-related sectors in April-November this fiscal have performed below as compared to a year ago; coal has grown just 1.5% against 3.2%, steel (7.2% against 10.7%) and electricity (4.9% against 5.8%) with only cement growing marginally as opposed to a negative growth of 1.2%.

While construction sector growth has risen from 2% in the first quarter to 2.6% in the second, higher than 1.7% in FY17, growth figures are still way low from 5% achieved in FY16.

Logistics sector has also assumed greater importance with the GST rollout, growth of e-commerce and adoption of projects like freight corridors, with the government recognising it as an infrastructure sector.

The sector, however, remains largely unorganised, facing challenges like high cost impacting competitiveness in domestic and global markets, under-developed material-handling capacities, fragmented warehousing, multiple regulatory and policy making bodies, lack of integrated IT infrastructure.

The document calls for bringing in investments, technologies like automation, skilling, removing bottlenecks and policy steps like single-window system for giving clearances.

While India is now on a long-term trend to meet $3.9 trillion infrastructure investment out of $4.5 trillion required by 2040, there is an urgent need to step up private investments to bridge the gap of around $526 billion, it said.