InvestNow News – 9th Jan 20 – India Avenue – NZ$2.2 trillion to be spent on India’s infrastructure over 5 years
INFRA TO DRIVE INDIA’S GROWTH
To pursue the goal of being a US$5trillion economy by 2025, the Government of India has released the “National Infrastructure Pipeline (NIP)”, following on from statements made by Prime Minister, Narendra Modi in his Independence Day speech in August 2019. The plan lays out the blueprint for spending on infrastructure, which is expected to propel India’s nominal GDP growth to above 12% per annum. It is expected that this will have a positive spiral on India’s growth trajectory going forward, as it is infrastructure spending required to service India’s growing needs. To put the amount into perspective, spending on Infrastructure in the 10-year period from 2008 -2017 was NZ$1.7 trillion.
Given India is an infrastructure deficit country, spending in this area is necessary to achieve levels of growth required in the country. India’s Gross Fixed Capital Formation (GFCF) growth has averaged 7.7% over 2013-2017, which is one of the longest stretches of low growth in many decades. This was starting to recover before an election related slowdown, a cut in government spending and a financial liquidity crisis. Given the NIP, it is likely that GFCF can grow from 29% of GDP today to 34% of GDP i.e. a 15% rate of growth of GFCF (last cycle peak in 2008 was 36% of GDP) . This should create the pathway towards the commencement of India’s next business cycle.
It is anticipated that India needs to spend NZ$6.7 trillion on infrastructure by 2030 to maintain its growth rate. The NIP is an endeavor to make this happen efficiently.