Opinion - Editorials

Finding funds for infrastructure

The budget has sought to address the needs of the infrastructure sector both directly and indirectly. It is estimated that the sector would require an investment of $490 billion over the next five years. Given that public spending in this area will continue to be critical, the budget proposals to step up plan outlays for the major infrastructure segments of energy, transport, and communications assume significance. The allocation for electricity has been hiked by about 30 per cent to Rs.93,815 crore for 2008-09 against the revised outlay of Rs.72,230 crore in the current year. A sum of about Rs.5,500 crore has been earmarked for rural electrification under specific schemes. Distribution and transmission reforms are to be speeded up. The government hopes to add the targeted 78,577 MW capacity in the Eleventh Plan. A few more ultra mega power projects, in addition to the three already awarded under public private partnership, are expected to come up. The plan outlays for transport including specific flagship schemes such as the National Highways Development Programme (NHDP) have also been increased significantly. The corpus of the Rural Infrastructure Development Fund, set up in 1995-96 to channelise bank funds to rural infrastructure projects, has been increased to Rs.14,000 crore. For boosting urban infrastructure, more funds are being provided to the flagship Jawaharlal Nehru National Urban Renewal Mission. Significant as these increased allocations are, the announcement on creating an institutional mechanism to monitor some of the major schemes is path breaking.

The announcement on corporate bond market, though in the nature of financial sector reform, has the potential to increase the flow of capital to infrastructure projects. For a variety of reasons, the bond market has remained underdeveloped in this country compared to the government securities and equity markets. Over the past year the RBI and SEBI have modified existing regulations and framed new rules to help evolve a vibrant market in which corporate bonds will be listed and traded on the country’s two principal stock exchanges, the NSE and the BSE. The budget has sought to proceed with the next steps towards creating a full-fledged bond market. There will be no tax deduction at source on bonds traded in the demat form. The empowered group of State finance ministers has been asked to evolve a uniform stamp duty structure for these instruments. Infrastructure projects require long-term funds and in developed countries it is the bond market that provides them. Investors in India looking for a safe long-term fixed income avenue would also benefit from the emergence of the bond market.

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