The Hindu Business Line : Infrastructure development

Attempts to attract private investment in infrastructure development by way of incentives are not enough. Insufficient outlays in successive Budgets have led to poor and inadequate facilities. The Budget could have announced measures for introduction of technologies such as broadband and the entry of new players. Also, it is essential that all the infrastructure projects announced in the Budget be implemented without delay and shortage of funds. Most important, there should be an attempt to measure the outcome of each programme.

AS RIGHTLY reiterated in the Economic Survey 2004-05, availability of quality infrastructure is essential for sustainable economic growth and poverty alleviation.

The Survey has emphasised on adequate scale of investment, increase in technical efficiency, enforcement of usercharges and competitive market structure for infrastructure development. In this context are the budgetary provisions enough and are they aimed in the right direction?

Attempts to attract private investment in infrastructure development by way of incentives such as tax holidays, tax incentives on investment in infrastructure, private participation, etc., are not enough. Even now 90 per cent of all infrastructure is publicly owned and managed.

Therefore, the outlays from the Budget for infrastructure development need to be sufficient. Insufficient outlays in successive Budgets have led to poor and inadequate facilities.

In this backdrop, a major boost for infrastructure was expected from Budget 2005-06. Some of the proposals such as the creation of SPVs (special purpose vehicles), Provision of Urban Amenities in Rural Areas (PURA) and special emphasis on health and education, particularly in the rural areas, are positive features of Budget 2005-06. However, the outlays will be grossly inadequate to meet the pressing demand for physical infrastructure.

In this context, the proposal to use a part of the large foreign exchange reserves for infrastructure projects is a welcome move.

The Inter-Institutional Group, consisting of IDBI, IDFC, ICICI Bank, SBI, LIC, Bank of Baroda and Punjab National Bank, along with the SPVs will ensure speedy conclusion of loan agreements and implementation of infrastructure projects for roads, ports, airports and tourism.

Reforms in the infrastructure sector have resulted in some positive developments, particularly in power generation, railways, ports and civil aviation in 2004-05.

Several sector-specific measures to ease bottlenecks in ports, telecommunications and the power sector have been initiated. But there are pressing requirements for further improvements in these crucial sectors of the economy.

Taking the power sector, for instance, there was increased growth from 5 per cent in 2003-04 to 6.5 per cent in 2004-05.

However, power shortage and poor accessibility continue particularly in the rural areas. Therefore, universal service obligations must be part of the reform process.

The Government succeeded in improving collection in the last two years by signing the tripartite agreement with public sector undertakings. But no such reform has been attempted in the Budget to ensure rationalisation of tariffs, fair competition and protection of the consumer market.

Similarly, there is no effort to correct the loss-making power sector. However, the allocation of Rs 1,100 crore for covering 1.25 lakh villages with a substation in every block and a transformer in every village is a welcome step.

With regard to roads, the total outlay has been increased to Rs 9,320 crore from Rs 6,514 crore. But this amount is also inadequate for a sector that carries 85 per cent of passengers and 70 per cent freight and is considered as one of the most important infrastructure.

Also, work has hardly begun on the North-South and East-West corridors (nearly 80 per cent) though they are expected to be completed by 2007. Further, there are no special provisions for rural roads connecting villages.

As with roads, the outlay for agriculture is also grossly insufficient. But there is a positive element — the outlay for Accelerated Irrigation Benefits Programme has been increased substantially from Rs 2,800 crore to Rs 4,800 crore. In addition, there is increased emphasis on supply of quality drinking water, reviving water bodies, micro-irrigation for agricultural development. But it is surprising that the Finance Minister omitted States such as Orissa, which have a serious water problem. Lack of proper port facilities has been long recognised. The average turnaround and waiting time is still very high compared to other developing countries.

Other than the SPV idea, there is no special provision for modernising and connecting ports with the road and rail network.

Other important infrastructure sectors such as civil aviation and cement have not got the required attention from the Budget. For instance, a special package to modernise and restructure airports through joint ventures was expected.

The extension of the Indira Awas Yogana would certainly help build rural infrastructure and also the steel and cement industries. Further, the outlay of Rs 5,500 crore for the national urban renewal mission would take care of important services such as urban transport, sanitation, sewage systems, and drinking water.

Reforms in the telecommunication sector resulted in phenomenal growth during 2001-04. However, India's teledensity of 6.6 for a population of 1,000 is very low compared to other developing countries such as China and Brazil (more than 42).

The Budget could have announced measures for introduction of new technologies and the entry of new players. There also needs to be more outlays if the Government is serious about connecting the more than 66,000 villages with public telephone.

At the recent Pravasi Bharatiya Divas in Mumbai, the Prime Minister had announced that India needs around $150 billion in infrastructure investment to maintain and achieve high growth rates for the economy. But Budget 2005-06 has failed to deliver in this direction.

Development of infrastructure would not only imply budgetary support, but also developing a market structure for the introduction of competition allowing players other than public-owned entities.

Private financing of public infrastructure needs more attention. Moreover, the competition engendered by private participation would improve the quality and the delivery system dramatically.

Considerable success has been achieved over the years in some infrastructure sectors through private participation. The bright examples are telecom and civil aviation.

It is essential that all the infrastructure projects announced in the Budget be implemented without delay and shortage of funds.

Most important, there should be an attempt to measure the outcome of each programme. If the Finance Minister succeeds in this, it would solve many problems, as it is not the amount of money but how it is used that matters.

(The authors are respectively Faculty at Institute of Economic Growth and Deputy Manager of State Bank of Hyderabad, Delhi. The views are personal.)

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