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Friday, Feb 22, 2008
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Infrastructure sector needs major thrust

Sujay Mehdudia

Call for major encouragement to private sector investment; promote public-private partnership at the level of States

Investment required during 2007-2017 will be $1.48 trillion
Regulatory mechanism needed for infrastructure

NEW DELHI: Although the Indian economy has been moving at a “breathtaking speed” clocking growth at between 8.5 and 9 per cent, fears arise that if the government does not take due steps to improve the “notoriously bad” infrastructure, things could take a turn for the worse.

Be it roads or railways; ports or airports; power plants or oil and gas infrastructure, the situation is not something to cheer about. There is need for huge investments in infrastructure and for aggressively promoting public-private partnership (PPP) at the level of States.

In his budget exercise, Finance Minister P. Chidambaram will have to seriously address the issue of how to attract major investments in the infrastructure sector across the country, the lack of which threatens to stall the objective of achieving the desired economic growth and results.

Two years ago, the government set up the India Infrastructure Finance Company Limited with an authorised Capital of Rs.1,000 crore and a paid-up capital of Rs.300 crore.

Focussed approach

The company has now ventured into major infrastructure financing and is adopting a focussed approach, addressing projects in the sectors of roads and bridges, the Railways, seaports, airports, inland waterways, other transportation projects, power, urban transport, water supply, sewerage, solid waste management and other physical infrastructure in urban areas; gas pipelines infrastructure in special economic zones, international convention centres and other tourism-related infrastructure.

According to the Consultation Paper on the projections of investment in infrastructure during the 11th Plan (2007-2012), the total requirement for the sector (at 2006-07 prices) is over Rs. 20,18,700 crore ($492 billion).

Disaggregates show that 30.5 per cent of the projected investments will have to be made in the power sector, 15.4 per cent in roads and bridges, 13.2 per cent in telecommunications, 12.6 per cent in the Railways, 3.7 per cent in ports, 1.7 per cent in airports and the remaining in irrigation, gas, storage, water and sanitation.

The paper estimates that the investment requirements during 2007-2017 covering the 11th and 12th Plans will be of the order of $1.48 trillion. Private investment is expected to constitute more than 65 per cent of the total investment in the telecom, ports and airport sectors during the 11th Plan.

In the power sector, it will raise to 26 per cent and in the road sector to 36 per cent. The shares of public and private investment in total infrastructure investment during the 11th Plan are projected at about 70 and 30 per cent respectively, compared to 83 and 17 per cent during the Tenth Plan.

Although the government has taken initiatives such as the highway road link from Kashmir to Kanyakumari, privatisation of airports and promotion of ports in the private sector, progress has not been achieved at the desired pace.

Red tape

Investments are bogged down in bureaucratic bottlenecks and red tape. The ports are in bad shape, airports are insufficient and telecommunication in rural India is of poor quality.

In the power sector, irregular, scarce and low quality supply is the order of the day. It is important that major encouragement be given to private sector investment in view of the inability of the States and Centre to generate resources.

Experts say there is an urgent need to put in place a regulatory mechanism for all infrastructure projects at various levels.

The Confederation of Indian Industry wants external commercial borrowings allowed in excess of the ceiling of $20 million for funding rupee expenditure on infrastructure projects.

It said many foreign companies were willing to take rupee risk as well as project risk in the infrastructure space. To make this effective, the government should allow foreign investors to participate in the Credit Default Swaps market and have a separate limit for the contingent liability that would arise in case the borrower defaults.

IL&FS footprint

Infrastructure Leasing and Financing Service (IL&FS) is in the forefront of infrastructure development initiatives. Strategic relations with the State governments and on-going relationships with various departments of the Central Government have helped to widen the IL&FS national footprint. IL&FS has catalysed over $8 billion for infrastructure projects and is now working on projects with an aggregate cost of $10 billion.

However, all this needs to be given a new thrust in this year’s budget to ensure that the “dream run” of the second biggest emerging economy does not turn soar due to neglect on the infrastructure front.

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