Despite the government’s efforts to focus on building infrastructure, the availability gap is unlikely to close any time soon, according to research by Standard & Poor’s.
India, Asia’s third-largest economy after China and Japan, will remain hungry for more capital to fuel new capacity growth, the study says. The nation has made progress in some segments of infrastructure such as narrowing the electricity deficit, more passengers at its airports, increasing renewable energy capacity and building major metro projects across the states, PTI reported.
Yet it will need an additional $4.5 trillion over the next 25 years to build infrastructure for its rapidly growing economy, which in 2018 represents a $2.6 trillion economy and a population base of 1. .3 billion. India’s economy grew by 6.7% in the fiscal year ended March 31, 2018, a slowdown from 7.1% a year earlier and 8.2% in the fiscal year closed in March 2016.
Economic growth essentially depends on the state of a country’s infrastructure. India is still struggling with inadequate standard roads, railway lines and amenities for passengers, ports for foreign and domestic trade and urban infrastructure.
“The infrastructure sector has a strong 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 and two percentage points to its growth currently capped at 6.5% to 7.5%, well below its potential.
Meanwhile, ratings agency Moody’s said on Monday that recent reductions in Goods and Services Tax rates on 88 items will weigh on government revenue collection and are “credit negative” as they will exert pressure on fiscal consolidation efforts.
The GST Board, chaired by the Union finance minister, last week slashed tax rates on white goods as well as various handicrafts and paints.
“We estimate that the revenue loss from the most recent tax cuts is around 0.04% to 0.08% of GDP per year. Although the proportion of revenue loss is small, the fluctuation in rates tax creates uncertainty in government revenues and comes with persistent upside risks to government spending,” Moody’s said in a statement.