Country-wide infrastructure spending required over the next decade would be ~Rs 235 trillion, CRISIL said, and called for average GDP growth of 7.5 per cent and infrastructure spending of above 6.0 per cent of GDP to help achieve this.

States already account for 41 per cent of the overall infrastructure spending of Rs 77 trillion (Centre + states + private sector) this decade. Five sectors – transport, irrigation, energy, urban and housing, and water and sanitation – accounted for two-thirds of states’ spending. Some of these sectors, which come under the purview of states, have burgeoning infrastructure deficits and will need big investment leaps to plug the gaps.

Says Sameer Bhatia, President, CRISIL Infrastructure Advisory: “Unless states contribute nearly 50 per cent of infrastructure investments, India’s build-out momentum could taper sharply. With private investments tepid in recent years, and fiscal limitations on central spending, states have been keeping public spending going. They will need to strengthen fiscal health and build institutional capacity to sustain far higher levels of capex.”

The spending trajectory of 15 large states, which accounted for 83 per cent of infrastructure capex during fiscals 2015-2019, would be crucial to the overall goal. Bucketing these states into three categories – frontrunners, middle of the pack, and climbers – CRISIL recommends customised strategies and action sequences to maximise investments.

Frontrunner states such as Gujarat, Maharashtra and Karnataka, which saw a moderation in capex growth on a higher base, need to crowd in private investments, and find new triggers to grow capex sharply from current levels. Middle-of- the-pack states such as Haryana, Andhra Pradesh and Telangana can be growth leaders by sustaining their current spending. However, climbers such as Rajasthan and Uttar Pradesh, which have been high spenders in recent years, could be constrained by surging debt burden.

CRISIL identifies fiscal deterioration, institutional weaknesses and inability to scale up commercial financing and public- private partnerships (PPPs) as the key structural constraints to address for a sustained increase in spending.

“Three vectors can facilitate this,” says Anand Madhavan, Director, CRISIL Infrastructure Advisory. “One, expanding fiscal space by unlocking asset monetisation potential and moving to merit-based directed subsidies; two, nurturing robust counterparty institutions that can own up infrastructure development (including driving viable PPPs); and, three, ironing out sectoral creases and rolling out policies that lift the investment momentum.”

While states will have to do the heavy lifting, they also need to work with the Centre on sectoral reforms. The Yearbook gives suggestions for this, while updating the scores of CRISIL InfraInvex, India’s first investability index that tracks the investment attractiveness of infrastructure sectors nationally.

Barring airports and railways, which saw a slight increase in their CRISIL InfraInvex scores following an uptick in, and successful award of, contracts for modernisation, the scores of most other sectors saw a decline.

Says Vivek Sharma, Senior Director, CRISIL Infrastructure Advisory, “Private investments have been impacted this year because of the global economic slowdown, financing challenges and weaknesses in policy and institutional frameworks. The predicament of renewable energy is symptomatic of this. Among the leaders in 2017 and 2018, the sector’s CRISIL InfraInvex score fell the most because of increased counter-party risk from state distribution entities, and transmission and land acquisition issues in the states. Highways, too, saw a marginal dip on account of financing issues, though it remains an attractive destination for private investment.”