Revive the “animal spirit” to build resilient infrastructure in India

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Aman Hans Revive the ?animal spirit? to build resilient infrastructure in India finance world bank
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It’s increasingly a cliché to say that the coronavirus (COVID-19) will usher in a new era, or even to debate whether the curve of the economic recovery will be V, U, or wheelbarrow-shaped. Only time can reveal the actual outcomes. For the purpose of this blog, let’s assume there indeed exists a silver lining and that it will emerge much sooner than later.

What does this mean for infrastructure in India? Using a term coined by British economist John Maynard Keynes, we need to revive the “animal spirit” of potential investors. In order to bolster their confidence, and capitalize on emerging opportunities during the recovery, India must showcase its preparedness—not only by putting a lid on the coronavirus outbreak, but also by building a robust pipeline of bankable infrastructure projects. 

As the world tiptoes out of a prolonged lockdown, in the infrastructure sector a scenario has emerged whereby many contracts have either become extremely difficult to carry out, or have been rendered completely incapable of being performed. Also, with traffic volumes collapsing, concessionaires are facing a massive short-term liquidity crunch.

Though the government and the Reserve Bank of India have already taken considerable action to address overall macroeconomic risk, the key short-term infrastructure challenge is to prevent the failure of existing PPPs. This likely means the government will have to strike the right balance between extant procurement regulations, which don’t promote bilateral renegotiation of contracts, and the extensive vulnerability to this force majeure risk, which was unforeseen by private investors and government authorities alike. 

One vital government measure to charm investment into India has been the preparation of the National Infrastructure Pipeline (NIP), which provides a roadmap for investment of $1.5 trillion in infrastructure over the next five years.  To build this robust pipeline, the government constituted a task force of senior staff from the Ministry of Finance and NITI Aayog, a leading policy think tank. The task force held extensive deliberations with central line ministries, key industry stakeholders, and state governments, among others.

The data captured in the NIP reveals that from 2020–25, the bulk of infrastructure investment in India is projected to be in energy (24%), roads (18%), urban (17%), and railways (12%). The balance (about 17%) is in rural and agricultural infrastructure. In terms of preparedness, 40% of NIP projects are now under implementation, 30% are at the conceptualization stage, and 20% are under development.

In this overall investment pie, the central and state governments are expected to have almost equal shares, followed by the private sector at approximately 21%. Since 2015, India has seen a considerable rise in the states’ share in infrastructure investment, in line with the recommendations of the 14th Finance Commission that give states more fiscal autonomy. Going forward, in order to increase the contribution of the states and the private sector in India’s infrastructure creation, the central government can nudge states by introducing a mandatory PPP rider on any financial assistance being given for financing infrastructure. 

Furthermore, out of the approximately 39% of the central government’s share of the NIP, 60% of potential funding has been envisaged through extra-budgetary resources. In the recovery from COVID-19, this scenario may further get stressed. Thus, to mobilize these funds while ensuring minimal liability on the exchequer, it’s imperative to continuously prod even the central line ministries and agencies to implement projects under suitable PPP frameworks. This dovetails with ongoing efforts to reboot the country’s PPP framework, emphasizing innovative models and pre-bid project planning and structuring—with the objective of enhancing viability and ensuring ease of project construction.

Recently, the successful monetization and recycling of India’s national highways and airports has resurrected the belief in private investment appetite for the country’s infrastructure. To further revitalize the economy, more such transactions—whereby the economic value of the underlying assets can be transferred while retaining ownership—are being planned for newer asset classes like power transmission lines, stadiums, passenger trains, railway stations, warehouses, and more. These transactions are expected not only to pump more liquidity into the economy and boost capital expenditure, but also to achieve better operation and maintenance of the assets by the private sector.

Historically, bottlenecks in implementing infrastructure projects in India have stemmed from delays in land acquisition, compensation payments, environmental concerns, time and cost overruns, procedural delays, availability of funds, and prolonged dispute resolution. Recently, the government has focused on de-bottlenecking these projects. NITI Aayog has also been addressing these issues with policy measures such as a national policy framework for effective project management to align with global best practices as well as roll-out of Initiatives to Revive the Construction Sector. The latter include streamlining the arbitration and appeal process—paving the way for release of funds blocked by protracted appeals.

Implementing these reforms and consolidating potential infrastructure projects through the NIP should not only infuse liquidity and enhance overall credit offtake, but also provide a framework for better due diligence and stakeholder coordination.

While getting out of the crisis will require immense cooperation on so many levels to save lives and livelihoods, in infrastructure we must get the base right to build sustainably—as we’ve been working to do.  From here, investors will come to test whether our systems are up to the task. I say: yes, they are; and it’s time to revive investors’ animal spirits.


Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.


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This blog is managed by the Infrastructure Finance, PPPs & Guarantees Group of the World Bank. Learn more about our work here.


Aman Hans

Climate and sustainable finance specialist

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