New Delhi/Mumbai: Admitting that the government faces financial constraints, Road Transport and Highways Minister Nitin Gadkari on Tuesday exhorted domestic companies to invest in infrastructure projects to kick start a slowing economy.

“One thing is clear that the government is facing financial constraints and it is very difficult for any government to invest in all these sectors (infrastructure). That is why this is alternative with the help of public private investment," Gadkari said at credit rating agency CRISIL’s India Infrastructure Conclave in New Delhi.

India needs to find out an infrastructure investment model that is lucrative for the investors as well as the financial institutions or the lenders, the minister said, adding that the country has huge opportunity for public private partnerships (PPPs).

Gadkari said the participation of smaller Indian companies in projects will ultimately create more competition. “We need to motivate Indian industry, investors to invest more and we need positive support from financial institutions such as banks, insurance companies. We have to identify more sectors for public private investment," the minister said.

This comes in the backdrop of the government’s aim to make India a $5 trillion economy by 2024—a task which looks daunting in the face of a deep downturn in the economy.

In September, the finance ministry had announced setting up of a task force headed by economic affairs secretary Atanu Chakraborty to identify a priority pipeline of central government infrastructure projects worth ₹100 trillion to be rolled out in next five years till 2024-25.

Keeping with the theme of states needing to pull their weight in public spending, Crisil said in its annual infrastructure yearbook that states need to raise their spending plans by 3.5 times over the next decade to meet the country’s infrastructure goals.

Crisil estimated that India needs infrastructure spending of ₹235 lakh crore over the next decade, from 2021 till 2030, to be supported by an average GDP growth of 7.5% and infrastructure spending of above 6% of GDP.

States will have to contribute close to half of this infra outlay, or ₹110-125 lakh crore.

While Maharashtra, Karnataka, Tamil Nadu and Gujarat are the “front-runner states" with the benefits of urbanization and a high industrial base, states such as Andhra Pradesh, Kerala, Punjab, Haryana and Telangana are expected to catch up over the next decade. The six “climber states" – Bihar, Madhya Pradesh, Odisha, Rajasthan, Uttar Pradesh, and West Bengal – have seen sharp capital expenditure growth in the last five years, despite their lower incomes per capita. “An accompanying debt surge could come in the way of sustaining this," Crisil’s yearbook said. “Continuously upfront institution building to improve investment capacity in social and physical infrastructure will help create better conditions for growth."

States already account for 41% of the overall infrastructure spending of ₹77 lakh crore, including public and private spending in this decade. Five sectors – transport, irrigation, energy, urban & housing, and water and sanitation – accounted for two-thirds of states’ spending so far. “Some of these sectors, which come under the purview of states, have burgeoning infrastructure deficits and will need big investment leaps to plug the gaps," the agency said.

Sameer Bhatia, President, Crisil Infrastructure Advisory, said: “Unless states contribute nearly 50% of infrastructure investments, India’s build-out momentum could taper sharply. With private investments tepid in recent years, and fiscal limitations on central spending, states have been keeping public spending going. They will need to strengthen fiscal health and build institutional capacity to sustain far higher levels of capex."

Vivek Sharma, Senior Director, CRISIL Infrastructure Advisory, said: “Private investments have been impacted this year because of the global economic slowdown, financing challenges and weaknesses in policy and institutional frameworks. The predicament of renewable energy is symptomatic of this. Among the leaders in 2017 and 2018, the sector’s CRISIL InfraInvex score fell the most because of increased counter-party risk from state distribution entities, and transmission and land acquisition issues in the states. Highways, too, saw a marginal dip on account of financing issues, though it remains an attractive destination for private investment."

However, a revenue deficit and outstanding liabilities will curb states’ ability to keep spending. Crisil recommended revamping the GST framework, asset monetization and new avenues of commercial financing and a greater rigour in project development to help states rise to the challenge.

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