CRISIL identifies fiscal deterioration, institutional weaknesses and inability to scale up commercial financing and public-private partnerships as the key structural constraints to address for a sustained increase in spending.
India needs to spend a total of Rs 235 lakh crore spend on infrastructure over the next decade and states will have to step up their contribution from around 41% of the overall infrastructure spending in the current decade. This requires gross domestic product (GDP) growth rate of 7.5% and infrastructure spending of above 6.0% of GDP.
“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,” said Sameer Bhatia, President, CRISIL Infrastructure Advisory.
The report said that a ‘business-as-usual approach’ would not be sufficient to realise and unlock their investment potential, and it will require renewed policy commitment to reforms, institution-building, and rigour in project development. “We are cautiously optimistic that states will, indeed, rise up to the challenge,” Crisil said.
The rating agency said that the spending trajectory of 15 large states, which accounted for 83% of infrastructure capex during fiscal years between 2015-2019, would be crucial to the overall goal.
“Frontrunner states such as Gujarat, Maharashtra and Karnataka, which saw a moderation in capex growth on a higher base, need to crowd in private investments, and find new triggers to grow capex sharply from current levels. Middle-of the-pack states such as Haryana, Andhra Pradesh and Telangana can be growth leaders by sustaining their current spending,” Crisil said. Adding that ‘climbers’ such as Rajasthan and Uttar Pradesh, which have been high spenders in recent years, could be constrained by surging debt burden.
The report stated that there’s over-reliance on public outlays as public-private partnership (PPP) and commercial financing pilots have not acquired scale and depth.