Teji Mandi Explains: Here’s why infrastructure boom post lockdown is a double-edged sword
Photo by BL Soni

Infrastructure activities bounced back after the prolonged impact of COVID-19 led lockdown. After the complete washout in H1 of FY21, infrastructure activities picked up pace in the second half, backed by the strong government orders.

As per an Antique research report, overall tenders worth Rs 7.9 lakh crore were floated in FY21, up 45% over the last financial year. The majority of them were in the second half of the year after the ease in lockdown. Tenders of Rs 3.4 lakh crore were issued in the first half (April- September) of FY21. The aggregate tendering shot up to Rs 4.4 lakh crore in the second half, aided by large value orders.

Road Construction Sector Leads the Show

In FY21, around 12,120 tenders worth over Rs 3.14 lakh crore were issued in the road construction sector by leading government agencies like NHAI, NHIDCL, MoRTH, and UPEIDA.

NHAI was the major institute that kept the pace going for the road construction sector. Despite the fact that construction came to a halt in April due to the lockdown, it awarded 141 projects (4788kms) in FY21. NHAI also built 4,192 km of national highways in FY21 which is the highest ever in a financial year.

Mining Activities Surge Ahead

The activity level increased in the mining segment due to the changes in coal mining policy. The projects worth 85,900 crores were awarded in this segment as the government opened it up for private miners.

Among others, the irrigation and water segment also saw a high flow of orders. The healthcare sector also saw an increased number of tenders over Rs 21,100 crore mainly to set up COVID-19 related facilities.

Rising Debt Concerns

Building infrastructure is an important economic tool that facilitates growth and generates employment opportunities at a larger scale. Accordingly, the government of India has put an additional emphasis on infrastructure development to overcome the ill effects of the Covid-19.

However, it comes with a price. Road construction activity in India has expanded at a rapid pace in the last few years. With that, debt level at NHAI has also increased consistently in the past few years. According to the Parliamentary Standing Committee's (PSC) report, the NHAI's debt servicing liability for the next three financial years is Rs 97,115 crore.

As per the report, the top 10 states - Maharashtra, Uttar Pradesh, Karnataka, Odisha, Tamil Nadu, West Bengal, Madhya Pradesh, Assam, Gujarat, and Rajasthan - together accounted for 72% of the total number of tenders issued in Q4FY21. With a high emphasis on infrastructure creation, these states are also expected to see their debt levels rising at an alarming pace. The states and the central government have announced an ambitious borrowing program for FY22. It will further escalate their fiscal deficit concerns.

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