G. Chandrashekhar

INDIA is one of the world's fastest growing significant economies with most macro-economic indicators favouring continued rapid progress. While annual GDP growth averaged 5.4 per cent during the Ninth Five Year Plan (1997-2002), the first three years of the Tenth Plan period recorded GDP growth rate in excess of 6.0 per cent a year.

Both industry and services continue to register robust performance, while agriculture, so far a laggard, is poised for a turnaround, thanks to several government initiatives. Currently in excess of $140 billion, foreign exchange reserves are growing. Despite high energy prices and considerable import dependence, inflation is under reasonable control.

Population of close to 1.1 billion grows at 1.8 per cent a year. India today has a large and vibrant middle-class with rising purchasing power. With the opening up of the economy, Indian markets are gradually integrating with the global markets.

What are the future areas of growth in India? Undoubtedly, the following: food, education, health, apparel, housing, as also leisure & entertainment. Given the existing low level of consumption of these goods and services, rising incomes are sure to automatically translate into higher demand for a whole range of products and services.

One major area of weakness for the country is inadequate infrastructure. Whether it is roads, seaports, airports, power, telecommunication or warehousing, there is tremendous scope for modernisation and upgradation. There is now considerable and welcome consensus among policymakers that improvements in infrastructure will have a strong impact on GDP growth and poverty alleviation. International experience shows that there are many subtle difficulties in finding the right infrastructure policy framework.

A well-calibrated system of incentives will encourage private sector to invest and at the same time prevent it from being a mere rent-seeker. Obviously, the way to attract investment — with multi-decade horizons of projects — is to set up a rule-based system that places limits on arbitrary exercise of state power.

Connectivity: Key to rapid growth: The Indian Government believes the most striking success of liberalisation and freedom to invest, and where competition has delivered real benefit to consumers, is in the area of telecommunication where private players have made deep inroads.

Tele-density has increased dramatically. The sharp drop in broadband telecom prices represents the beginning of a phase of hectic expansion of the broadband telecom sector — something that is likely to have a large impact on the growth of the economy.

According to the Government, an important area requiring a fresh policy impetus is that of reducing the extent to which a State-led planning approach is used in the utilisation of the electromagnetic spectrum. After tele-connectivity, roads are another big area of expanded activity connecting different parts of the diverse country.

Substantial parts of the ambitious Golden Quadrilateral — connecting the four corners of the country — have been completed and are already seen fuelling the growth of productivity. The challenge now is to shift focus from construction to corridor management — optimal utilisation of capital asset to deliver the maximum throughput and world-class levels of road safety. The next level of activity is competition-driven upgrade of four-lane roads into expressways in high-density stretches, and for construction of new links.

The efficiency parameters of India's port sector have improved, thanks to new kinds of contracting. Inter-port and intra-port competition is now accepted as the way forward. However, to ensure there is no monopoly and real benefits are delivered to stakeholders, including port-users, the policy framework may have to be re-crafted. The question of port connectivity through rail and road as also international benchmarking on performance and price will have to be addressed. There is conviction that high growth rates of international trade would be the order of the day for India. Therefore, futuristic plans, rather than addressing current bottlenecks, will have to be designed so as to meet future needs.

The railways remain an important area of connecting people and places as also moving goods, more so because of the fact that it is highly energy-efficient. Substantial reforms are called for in the functioning of the railways, which continues to be strictly State-controlled.

However, the story is different for the civil aviation sector. Major progress is being achieved in this sector. In so far as the airline industry is concerned, the only goal of public policy is to have low entry barriers and high levels of competition. On the other hand, there is belief that `airports' have a `public goods' characteristic and therefore, a bigger role for the State is envisaged. Competition in the airline industry has surely resulted in lower fares and increased traffic, both domestic and international.

In the area of power, within policymaking circles, there seems to be greater clarity on the separate issues in generation, transmission and distribution. Generation does not pose problem of `public goods', and it can be a normal private industry, provided the downstream buyers operate in a sound institutional framework. It will not be difficult to attract private investment in generation if reforms in transmission and distribution are in place. The Electricity Act and recent reforms in distribution have served to revitalise investments in this area. Power trading, like spot markets for commodities, is a major advance. Losses in power distribution are, of course, a matter of concern.

The most important frontier in Indian infrastructure consists of urban infrastructure. The techniques and strategies that worked for national public goods cannot be directly applied to local public goods. This calls for greater authority to execute projects. According to the Government, the focus has to be on the 74th amendment to the Constitution on empowering cities, on supporting institutional reforms at cities, directing fiscal transfers for paying transition costs and poverty targeting.

Public private partnership: Infrastructure projects have, by their very nature, long gestation periods. In many cases, they may not be financially viable too. On the other hand, the Government is not in a position to make large budgetary allocation for such projects. A novel way to take infrastructure development forward by bringing in private sector resources and techno-managerial efficiencies is the Public Private Partnership (PPP) concept.

For infrastructure development, a special facility that envisages support to PPP projects is `viability gap funding'. Primarily, this facility is meant to reduce capital cost of the projects by credit enhancement, and to make them viable and attractive for private investments through supplementary grant funding.

The Government has laid down certain criteria for eligibility of funding. Projects must belong to one of the following sectors: a. Roads, railways, seaports, airports; b. Power; c. Water supply, sewerage and solid waste disposal in urban areas; and d. International convention centres.

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