- The main focus of the Union Budget for 2021-22 is on infrastructure development-led growth.
- This is expected to create a demand in the economy and thereby help it recover after the pandemic crisis.
- This commentary explores whether the thrust on infrastructure development will lead to adverse environmental consequences.
- The views expressed in this commentary are that of the author.
Investment in infrastructure is the most important focus area in the Union Budget 2021-2022 unveiled by Finance Minister Nirmala Sitharaman on February 1, and it is for this reason that it becomes important for the environment. The budget does talk about health care, but that is more as a response to the COVID-19 pandemic rather than as an expression of government policy.
“This budget comes at a time when all of us desire to give a greater impetus to the economy,” stated the finance minister in her post-speech press conference. “And that impetus we thought would be qualitatively spent and [would] give the necessary demand push if we choose to spend big on infrastructure. That is why if there are two important features of this budget, we chose to spend big on infrastructure, which pans across roads, bridges, ports, power generation and so on. And also as a second feature, attend to the needs of the health sector.”
This was a politically important budget for a government that is almost always tuned to electoral politics. It is the seventh year of the present National Democratic Alliance government, and through this budget the Bharatiya Janata Party wants to start the work for the national elections of 2024. But in the short-term, 2021 is the year of important elections to the state assemblies of Kerala, Tamil Nadu, West Bengal and Assam. This year is also the curtain-raiser for the Uttar Pradesh assembly elections of 2022.
With the COVID-19 pandemic and the subsequent lockdown dealing a further blow to an already ailing economy, this budget was a call to action for the national government. And that is what it sets out to achieve through the focus on infrastructure.
The government had two options to increase demand and money flow into the economy and thereby spur economic growth. The first one, as suggested by many economists, including Nobel Laureate Abhijit Banerjee, was to get money into the hands of the people, through multiple means including direct benefit transfer, and this money would be used to buy goods and services to rekindle the economy. The second option was to support infrastructure development, which will spur demand for industries such as cement, mining, steel, petrochemicals, etc. This in turn will improve employment generation and bring money into the hands of the people and the economy. With the budget, the government chose the second option.
The nuts and bolts of the infrastructure budget
The approach is three-pronged, according to the finance minister – creating institutional structures, monetising assets and enhancing the share of capital expenditure in central and state budgets. At the brass-tacks, this includes: the establishment of a Development Financial Institution for financing infrastructure development; attracting foreign investors into real estate and infrastructure investment trusts; monetising the operations of public infrastructure assets such as highways, railway freight corridors and airports; and a 34.5 percent increase in capital expenditure allocation.
The budget states that new and improvement of highways and railway corridors are planned, including dedicated freight corridors for the railways. There is support for urban public transport, including central support to metro-rail projects in cities. Operations of seven more major sea ports will be offered for public-private partnerships. More ships will be invited to India to be broken down at Alang in Gujarat. The gas pipeline network will be expanded.
In the energy sector, the idea of the budget is to launch a “revamped, reforms-based, result-linked power distribution sector scheme” with an outlay of Rs 3.05 trillion over five years. The scheme will help distribution companies to create infrastructure, “including pre-paid smart metering and feeder separation, upgradation of systems, etc., tied to financial improvements.”
A National Hydrogen Energy Mission is proposed to be launched in 2021-22 for generating hydrogen from green power sources. For the non-conventional energy sector, the finance minister provided an additional capital infusion of Rs. 10 billion to the Solar Energy Corporation of India and Rs. 15 billion to the Indian Renewable Energy Agency. Considering the infrastructure support to the energy sector, a commentator has called it “a watershed moment in India’s energy history.”
There is also support for agricultural infrastructure, which attracts attention due to the ongoing farmers’ protests. The government announced to impose an Agriculture Infrastructure and Development Cess on some consumable items including petrol and diesel, to collect financial resources for developing agricultural infrastructure.
Earlier governments had also opted for infrastructure-led growth
With the recent budget, the government has opted for the second option. However, this is not the first government, in the years after the economic reforms of 1991, that has chosen this option. The Narasimha Rao-led Congress government from 1991 to 1996 started with a focus on infrastructure development along with the economic reforms.
It was then that the coasts came into the country’s economic consciousness since they were ideal for locating thermal power plants. It was easy to reach coal as fuel for these plants if they were located near the coast and had access to a nearby or a captive port. Coastal roads and other infrastructure projects were implemented.
The two United Front (UF) governments from June 1996 to March 1998, led successively by H.D. Deve Gowda and I.K. Gujral as prime ministers, focussed on infrastructure-led growth. So did the first full-term BJP-led National Democratic Alliance government headed by Atal Bihari Vajpayee from 1998 to 2004.
“In the Vajpayee government what we did was deliberately follow a policy of sequencing the demand for investment goods first and for consumption goods later,” the then finance minister Yashwant Sinha explained the modus operandi in his book India Unmade (Juggernaut Books, 2018). “So first we had all these projects for roads, telecom, housing, etc., which created demand for investment goods, which gave a fillip to industries producing investment goods like cement, steel, building material, etc. Their boost led to employment generation, which brought additional money into people’s pockets, which led to increased demand for consumption goods.”
It was during this period that the Vajpayee government launched the famous National Highways Development Project, with new highways connecting the four main cities through the Golden Quadrilateral, and similar highways linking north to south and east to west of the country. The history of four- and six-lane highways in India begins from these projects.
However, the Narendra Modi-led NDA government since 2014 had not focused on infrastructure-led growth in any of the previous budgets. Since the government has made public its policy position, there would be thrust on the expansion of old and creation of new projects in the coming months and years.
The environmental loop
There have been enough examples of linear infrastructure passing through protected areas and creating environmental issues and increased road kills. In the fragile Himalayan environment of Uttarakhand, the Char Dham highway has its own share of problems. Similar has been the situation with greenfield airports in Delhi and Mumbai; proposed hydroelectric plants in Arunachal Pradesh, Kerala and Tamil Nadu; ports in Odisha and Kerala; and railway lines in Maharashtra and Gujarat.
Even if one were to argue that it is not correct to correlate adverse environmental consequences for every infrastructure project, it is the larger politico-economic framework under which these projects are designed and implemented that leaves lesser scope for environmental safeguards. While road rollers are necessary to build roads, any suggestion for an alternative or rethink are usually meet a road roller-like mowing down by the government and the project proponents.
If the United Front coalition was a patchwork quilt of multiple regional political parties, the present NDA is more of a one-party monolith. Thus, if the peer competitiveness between the Telugu Desam Party (TDP) and the Dravida Munnetra Kazhagam (DMK) could have led to jostling for infrastructural projects in their respective states during the UF days, in today’s centrally-loaded arrangement a perceived national interest can drive projects. Thus, the very act of suggesting alternatives could be perceived and portrayed as going against the national interest.
If the push for infrastructure is seen as a continuation of policy action since 2014, then the government’s concern for the environment takes a downward plunge. The most recent were the government’s efforts to amend the Environment Impact Assessment Notification to make it easier for infrastructure and development projects to happen.
Prior to this, the Coastal Regulation Zone Notification was diluted. This reduced the protection that the coastal and estuarine environment had earlier. Similarly, the Draft National Forest Policy 2018 aimed at making it easier for industries to use forest-based resources. Even the Rs. 20 trillion economic package that was announced by the prime minister on May 12 had a strong push to strengthen mining, including that of fossil fuels such as coal. This was followed through with the launch of single-window clearance for coal mining.
So while on the one hand the government is setting out to make India a global leader on renewable energy generation, on the other there is promotion of coal mining and dilution of environment safeguards. If implemented without caution, the latest infrastructure blitz could make the situation worse for the environment.
Banner image: Urban skyline. Photo from Unsplash.