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Infrastructure: Implementation is the key - Views on News from Equitymaster
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  • Feb 28, 2001

    Infrastructure: Implementation is the key

    One of the most critical factors for faster growth of the economy is to progressively increase investments in infrastructure. This is one of the areas where India has been lagging due to the dismal health of the central government finance and lack of second-generation reforms to boost such investments. Realizing the need to boost this, the finance minister has initiated a slew of reforms in Budget 2002.

    Higher allocation for road and electrification…
    A central allocation of Rs 25 bn was provided for 2000-01, which has been increased to Rs 50 bn for the coming year. This additional provision is to be met through the 50% of the diesel cess. The government has also targeted the completion of electrification of bulk of the remaining villages in the next 6 years. Towards this, the ministry has earmarked a sum of Rs 7.5 bn out of Rural Infrastructure Development Fund (RIDF) for rural electrification works.

    User charges to be levied…
    On the infrastructure front, one of the main challenges lies in the imposition of appropriate user charges to provide adequate returns on investment for public utility service companies. Due to political reason, there exists huge cross-subsidisation of user charges. Non-merit subsidies in such low user charges have mounted to over 10% of GDP, a figure similar to the total fiscal deficit of the Central and State Governments combined. Hence, they are a major cause of the fiscal distress being experienced at all levels. Therefore, the government has plans to impose appropriate user charges in such a manner that the poor are protected while those who can pay are made to do so.

    Power: T&D loses to be reduced…
    Power is one of the key areas where the government plans to increase its focus because this has an indirect influence on economic growth. The total cost to the State Electricity Boards (SEBs) of implicit subsidies amounts to about Rs 360 bn this year. After accounting for cross subsidy and state subventions, actual commercial losses of all SEBs combined are estimated to be about Rs 240 bn. The Finance Minister pointed out the extremely higher Transmission and Distribution (T&D) loses, which should be regulated for better operational efficiency of SEBs.

    The Finance Minister also pointed that the total dues owed to Central Government utilities by SEBs and others now amount to over Rs 250 bn. If these resources were available, the country would have no difficulty in investing adequately in power sector expansion to the benefit of all. So, theft of electricity must be stopped and economic tariffs should be levied to make these units viable.

    The ministry has also envisaged a time bound programme for installation of 100% metering by December 2001. Besides, increase in plan allocation to the Accelerated Power Development Programme (APDP) has been proposed (allocation to go up to Rs 15 bn from Rs 10 bn in the current year).

    Convergence bill proposed…
    By March 2001, overall tele-density is expected to reach 3.5 per hundred from the existing level of around 2.5%. There are now almost 800,000 STD/ISD/calling booths around the country bringing telephone service within reach of almost all consumers, apart from generating considerable employment. To provide a impetus to this sector, the Government proposes to introduce the Convergence Bill to cover telecommunications, information technology, and information and broadcasting sectors in an integrated manner.

    Ports to handle more tonnage…
    Coming to the port sector, the policy initiatives designed to increase private sector participation in ports is expected to increase the port handling capacity in coming years. Overall, capacity in Indian major ports is expected to go up to 314 m tonnes this year and further to 376 m tonnes by the end of 2001-2002, along with substantial capacity addition in minor ports. Besides, Ennore port has already been corporatised and Jawahar Lal Nehru Port in New Mumbai is slated for corporatisation in FY02.

    Implementation is the key…
    There is no doubt that these measures would significantly accelerate infrastructure spending, which in turn would lead to higher GDP growth. But given the historic performance of various governments and promises Vs performance, it creates apprehension about implementation of these envisaged projects. Having said that, government should realise the need to achieve higher growth and adhere to its promises.



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