India Infrastructure Gap Unlikely to Narrow Soon

Despite the government’s efforts to focus on building infrastructure, the availability gap is unlikely to narrow anytime soon, according to a study by Standard & Poor’s.

The study says India, Asia’s third largest economy after China and Japan, will remain hungry for more capital to feed the growing for new capacities. The nation has achieved progress in some segments of infrastructure such as narrower electricity deficit, more passengers at its airports, rising renewables capacity and building of large metro train projects across states, PTI reported.

Yet, it will need another $4.5 trillion over the next 25 years to build infrastructure for its rapidly growing economy, which in 2018 is at $2.6 trillion economy and a population base of 1.3 billion. Indian economy grew at 6.7% in the year ended 31 March 2018, slower compared with 7.1% a year earlier and 8.2% in the year ended March 2016.

 Economic growth depends critically on the state of a country’s infrastructure. India still grapples with inadequate roads, railway lines, and standard amenities for passengers, ports for external and internal trade, and urban infrastructure.

“The infrastructure sector has high correlation with the overall economic environment,” according to an article titled ‘India’s infrastructure Marathon: Why steady growth can’t close the supply gap’.

 Economists and bankers say the Indian economy could add between one to two percentages to its growth currently plateauing at 6.5% to 7.5%, much below its potential.

Meanwhile, rating agency Moody’s on Monday said the recent Goods and Services Tax rate cuts on 88 items will weigh on government’s revenue collection and is ‘credit negative’ as it will put pressure on efforts of fiscal consolidation.

The GST Council, chaired by union finance minister, last week cut tax rates on white goods as well as various handicrafts items and paints.

“We estimate revenue loss from the most recent tax cuts to be about 0.04%-0.08% of GDP annually. Although the proportion of revenue loss is small, the vacillation in tax rates creates uncertainty around government revenue and comes amid persistent upside risks to its expenditures,” Moody’s said in a statement.