Over the last 25 years, the narrative of infrastructure development in India has undergone a significant transformation. A shift away from the dominance of the public sector, increasing private participation, the launch of several big-ticket programmes and game-changing policies are some of the key elements of the sector’s growth journey. Looking ahead, the focus will be on building capacity on the back of innovation and the green transition. In an interview with Indian Infrastructure, Suman Bery, Vice-Chairman, NITI Aayog, shares his perspective on the performance of the infrastructure sector, the possible solutions to address lingering issues, and the key future focus areas. Excerpts…
How would you assess the current state of infrastructure in India?
Attempts have been made over the last 25 years to address the common belief of a long-standing infrastructure deficit in the country. A considerable amount of thought and effort has gone into transforming the infrastructure sectors, which were largely dominated by the public sector, with the involvement of a more diverse set of actors. It is fair to say that a lot has been achieved, giving us confidence for the forthcoming Amrit Kaal. There is a growing focus on building capacity ahead of demand and being future ready, given the substantial changes that are taking place in the world, like the green transition.
There have been issues relating to the development of trunk and urban infrastructure, planning of infrastructure, establishment of regulatory frameworks and, if the private sector is entrained, issues of competition, entry and exit. We have made reasonable progress in trunk infrastructure, both in transport and energy, but somewhat less progress in urban infrastructure. This is the new frontier.
“What both the world and India desire is an acceleration of the green transition.”
The transition from state-provided infrastructure to substantially merchant infrastructure is not a trivial matter. If a substantial part of the infrastructure is dependent on private investors, stability, transparency and regulation concerns become critical. Through the National Infrastructure Pipeline, the government has attempted to provide such transparency. In addition, it has tried to enhance intermodal planning through PM Gati Shakti, though I am not sure whether or when this will be made available to the private sector.
Transformation of the infrastructure sectors has been an important contributor to improving the quality of life of citizens and raising their living standards. NITI Aayog has recently released a report titled, “National Multidimensional Poverty Index (MPI): A Progress Review 2023”, which highlights that between 2015-16 and 2019-21, around 13.5 crore people escaped multidimensional poverty. It is heartening to note that rural areas have witnessed the fastest decline in poverty, from 32.59 per cent to 19.28 per cent.
When you look at the past 20-25 years, what, in your opinion, could have been done better to attract greater private sector participation? Also, is that a desirable goal?
As an economist, I would say that the theory of public finance implies that something that generates such powerful externalities ought to be financed with public funds, since these investments benefit the economy as a whole. In reality, however, there are implementation issues within the public sector and the apparent solution is to improve the efficiency of the public sector. I would say that initiatives such as PM Gati Shakti are attempts to do so. The PM Gati Shakti Master Plan is an INR 100 lakh-crore project for building holistic infrastructure in India.
In the 1990s, a series of considerations, including public finance, taxation and efficiency, led to the notion that the game had to change. There was a realisation, apart from the financial crisis, that India was falling further behind, and the old model was not serving it. In 1996, it was proposed to establish the Infrastructure Development Finance Company. This was a conceptual shift, and it is interesting to recall that it took place at a rather confused time in our politics as, during that period, India went through different prime ministers and a lot of important things happened. I would say that it ended up being a bipartisan consensus, and that should not go unrecognised.
“There are implementation issues within the public sector and the solution is to improve the efficiency of the public sector. Initiatives such as PM Gati Shakti are attempts to do so.”
The issue then becomes whether jurisprudence and regulation have kept up. The Telecom Regulatory Authority of India was among the first infrastructure regulators that the country saw. At the time, it was dealing with a huge leap, from Mahanagar Telephone Nigam Limited and Bharat Sanchar Nigam Limited to the rise of mobile telephony. There has been considerable learning along the way. Today, we have between 800 million and 1 billion mobile phone connections, and our broadband is the cheapest in the world. Consequently, I believe that one has to take the long view. Similarly, there has been progress under the Pradhan Mantri Gram Sadak Yojana on rural roads.
As you said, private participation adds to efficiencies and is, therefore, desirable. What are some of the additional things we need to do in order to get greater private participation?
I believe what both the world and India desire is an acceleration of the green transition. The analysis done at the global level reveals that the primary distinction among green, thermal or fossil energy is the balance between capex and opex. There are a few observations in this area, the key one being how much of this incremental green investment – for smart meters, grids, possibly generation capacity itself – will be from the public sector, at the national and the state level. We had success in this with the private sector coming in, certainly in solar and wind. Grid modernisation and smart metering, among others, do not come cheap and a large part of it is going to come from the public sector.
At the moment, public investment in infrastructure is around 6 per cent of the GDP, and our total target investment is about 28-30 per cent of the GDP. So, the question that arises is, how can a nation committed to the green transition finance such incremental investments through the public sector? A great deal of thought and effort have been invested in this matter in the G20. There are arguments that some of this has to come from concessionary sources of finance. There are discussions about opening the taps in the multilateral development banking system.
A larger issue, however, is what it implies for the financing of investment by the private sector. There are environmental, social and governance funds, which consider India to be an important opportunity. The reality, however, is that these funds are finding it much easier to spontaneously support the green transition in Europe and the US.
The people in government, including myself, are mindful of this challenge. The question is how to expand the pipes for foreign funding to come in for the expanded investment in the private sector. Another challenge is how to develop and give depth to India’s own capital markets.
I believe the financing issues in the green transition are as much a work in progress as the regulatory issues I had argued earlier. And this is what makes the infrastructure space exciting for NITI Aayog.
For sectors that require a reliance on states, what should have been done to achieve greater progress?
I think the formulation that states lag rather than lead is not true across the board. For instance, Madhya Pradesh, not particularly an affluent state, has shining examples of urban management, particularly the city of Indore. The first question is, is there enough happening in the states? I have been surprised with how much is happening and how imaginative some of it is, including in the urban areas. I believe we should try and learn from the states. Secondly, in a broader sense, there is a generic issue of capacity beyond the urban areas. So, the government is investing massive amounts in skilling, even in the public sector.
NITI Aayog itself is setting up a State Support Mission, which has been seized on by a number of states. The idea is that each state knows its problem and agenda, and NITI can assist in embedding people in areas that they think are important. This year, the Union Budget gave us an allocation of a few billion rupees, which will allow us to support the states.
I believe that given both, our presence in the Expenditure Finance Committee, where projects get reviewed, and the fact that we have a monitoring and evaluation function, it is important for NITI to ensure that there is a framework in place in the public sector to avoid gold-plating the infrastructure sector. Europe invested heavily in infrastructure during its golden period, as did Japan, but the US did not. However, if you look at which is the richest country in the world at the moment, it is the US, because it had an overall framework of competition and innovation. So, let us not think of infrastructure as a golden goose that lays only golden eggs.