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Dikshu C. Kukreja
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Mr. V. Raman Kumar
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Sanjay Bhatia
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Colin Shah
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Vinay Kalantri

India’s Infrastructure Sector Reforms

India’s Infrastructure Sector Reforms

Overview of the Indian infrastructure sector
The infrastructure sector, the backbone of the Indian economy, is crucial to advancing the country's overall development. The industry includes several other sub-segments, including telecommunication, power, highways, ports, and so forth. Infrastructure development is essential for India to achieve its goal of having a US$ 5 trillion economy by 2025. In order to boost the growth of the infrastructure sector, the government has introduced the National Infrastructure Pipeline (NIP), along with other programmes like "Make in India" and the production-linked incentives (PLI) scheme. Historically, transportation, energy, water, and irrigation funding has accounted for more than 80% of the nation's infrastructure spending. A sizable infusion of investment capital is necessary for major infrastructure development. Spending on water supply, transportation, and urban infrastructure is expected to expand the overall infrastructure investment at a CAGR of 11.4% between FY21-26. In the 10th five-year plan, infrastructure investment comprised about 5% of GDP, compared to 9% in the 11th five-year plan. A healthy economic, social, and political ecosystem will ensure that the country's infrastructure sector is well developed.

Development of the Indian infrastructure sector
The major reforms in the Indian infrastructure sector came with the implementation of the 12th five-year plan (FY 2012-17), where the Government of India began to place a significant emphasis on the infrastructure sector by announcing investments to the tune of US$ 1 trillion with 40% of the funds coming from the private sector. From FY 2008-17, infrastructure investment in India stood at Rs. 60 lakh crore (US$ 750.01 billion). The 11th five-year plan's infrastructure investment (FY 2008-12) stood at a total of Rs. 24 lakh crore (US$ 300 billion), and that in the 12th five year plan (FY 2013-17) totalled Rs. 36 lakh crore (US$ 450 billion). As a part of its policy reforms, the government of India also allowed 100% foreign direct investment through an automatic route ensuring minimal interference from governmental entities. According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in the infrastructure sector stood at US$ 54.12 billion between April 2000-March 2022.

A series of structural reforms for the infrastructure sector in India has laid the groundwork for higher economic growth supported by infrastructure development.

  • On June 25, 2015, Prime Minister Mr. Narendra Modi launched the Smart Cities Mission. The mission seeks to promote economic growth and enhance the quality of life through extensive work on the city's social, economic, physical, and institutional infrastructure. A two-stage competition resulted in selecting 100 cities to be developed as Smart Cities.
  • Further, a major boost was given to the infrastructure sector in the Union Budget of 2018-19, where the government increased funding for the infrastructure sector in recognition of that sector's function as the engine of economic expansion. A record-breaking allocation of Rs. 134,572 crore (US$ 16.9 billion) was made for the transportation sector, and efforts to develop disaster-resilient infrastructure also received a boost with an allocation of Rs. 60 crore (US$ 7.52 million) in 2018-19.
  • Subsequently, in December 2019, the government of India unveiled the National Infrastructure Pipeline (NIP) (FY 2019-25), which aims to develop world-class infrastructure across various sectors and regions in conjunction with the private sector with a total outlay of US$ 1,361.07 billion.

Following the pandemic, business dynamics across industries have been transitioned to digital, paving the way for a more promising digital future. Most infrastructure firms are now concentrating on digitising their procedures to enable smooth communication and transparency to build a strong digital infrastructure ecosystem. To augment the same, PM Gati Shakti National Master Plan (NMP) was launched on October 15, 2021 by Prime Minister Mr. Narendra Modi, a unified and comprehensive approach to the overall infrastructure growth of the economy. The goal of the Rs. 100 trillion (US$ 1.25 trillion) project is to improve interconnectivity between roads, rails, airways, and waterways to cut travel time and increase industrial production. Infrastructure developments in the country increase the overall economy's potential rate of GDP growth. This in turn starts an upward spiral of increased investment, economic expansion, and employment generation in the economy.


Source: National Infrastructure Pipeline

Government Initiatives
The Indian infrastructure sector receives great attention from the government as it significantly drives India's overall growth. In other words, the infrastructure sector catalyses India's economic growth by promoting the expansion of allied industries like cement, real estate and construction development projects. As the nation progressively recovers from the pandemic and the various sectors of the economy anticipate returning to normal operations, the government is giving infrastructure investment a fresh push. In this context, the government has introduced various initiatives for the infrastructure sector. Some of them are mentioned below.

  • Pradhan Mantri Aawas Yojna: This flagship programme of the government of India, carried out by the Ministry of Housing and Urban Affairs (MoHUA), was launched to provide affordable housing to all urban poor households by 2022. As of August 29, 2022, 122.69 lakh houses have been sanctioned, 103.17 lakh houses have been grounded, and 62.31 lakh houses have been completed under the scheme.
  • UDAAN Scheme “ Ude Desh Ka Aam Nagrik”: To develop the aviation infrastructure, the government launched the UDAAN scheme to provide air service links between small and medium cities and major cities. Under the UDAN programme, the cost of a one-hour flight in a "fixed-wing aircraft" or a half-hour flight in a helicopter covering around 500 km has been set at Rs. 2,500 (US$ 31.23).
  • Jal Jeevan Mission: The Jal Jeevan Mission, launched in 2019, aims to provide every rural household with Functional Household Tap Connections (FHTC) by 2024, supplying 55 litres of safe and adequate drinking water per person per day. As of August 29, 2022, 68,506,258 households have been provided with tap water connection since the mission's launch.

Road ahead
The panorama of infrastructure has never been more dynamic than it is now. Across the nation, world-class infrastructure in the fields of roads, waterways, trains, airports, and ports, among others, are being built due to a substantial shift in the industry. Urbanization and a surge in foreign investment in the sector have also helped its expansion. In order to achieve the vision, mission, and strategic goals of the government by 2025, India will require to develop new infrastructure and upgrade the existing infrastructure.

Future infrastructure is changing as a result of digital and technical disruptions. Technology adoption in infrastructure can be extremely valuable, lowering costs and time overruns, thus helping in improving efficiencies, and helping to make infrastructure more "people-centric,". The overall infrastructure capex is estimated to grow at a CAGR of 11.4% over FY21-26, driven by spending on water supply, transport and urban infrastructure. As previously said, recent government initiatives like GatiShakti, the National Infrastructure Pipeline, and the Asset Monetization Plan pave the way for India to have a robust infrastructure framework in the years to come. Being a developing country, India is poised to fully capitalise on the prospects of the infrastructure sector to expand. Therefore it is legitimate to conclude that India's infrastructure sector has a promising future ahead of it.

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