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Infrastructure: States to takeover - Views on News from Equitymaster
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  • Feb 28, 2002

    Infrastructure: States to takeover

    The Government, like in earlier budgets, has acknowledged the importance of infrastructure in removing bottlenecks and unleashing higher growth in the economy. Progress has been made in telecom, roads and ports but for other areas user charges pose a challenging question.

    Among the sectors, power has been a thorny issue ever since liberalization in 1991. The State run electricity boards, which were mandated to earn a minimum of 3% rate of return, on an average are clocking a negative return of 40%. Consequently, ironing out the creases is an imperative. The move, besides improving the SEB accounts, is necessary for improving fiscal health of the state and centre. More importantly, power sector reforms are considered to be essential for the economy to shift to a higher rate of growth.

    In 2001, to bolster power sector reforms, the centre and states decided to focus on transmission & distribution (T&D) rather than generation, as cause for the bleeding was T&D losses -- a euphemism for power theft. Under the Accelerated Power Development & Reforms Programme a memorandum of understanding (MoU) was entered into by the centre and 20 states (APDRP). The objective of the programme is to reduce the gap between revenues and the economic cost of power supply. The plan outlay towards the sector has been increased from Rs 15 bn to Rs 35 bn for FY03. However, access to funds will be linked to the reforms programme (milestones). This suggests that the centre is trying to get states to reduce/remove populist policies adopted towards the sector.

    Among the infrastructure sectors that faired well are roads. The Golden Quadrilateral, linking the four metros, is likely to be completed by 2003 end, which is 12 months ahead of schedule. Work on the North-South and East-West corridors has also commenced. The promptness in execution of these projects has helped buoyancy in the cement industry.

    The Government is on a privatisation binge. Besides disinvestments, the centre is trying to facilitate more participation from the private sector on infrastructure investments. Stating difficulty in management and raising market based funding, the Government is moving towards corporatisation of ports. 25 private sector projects are in implementation phase or on the drawing board. Subsequently, the Government will play its part of strengthening regulation. There seems to be even more thrust on aviation. Privatisation of four metros to improve the airport experience for the traveller has been mentioned in the budget.

    Steps in the right direction have also been taken on urban development. Today, the urban population has touched 250 m. Consequently, the pressure on essential utilities is tremendous. To release the stress the centre has launched the Urban Reform Incentive Fund with a corpus of Rs 5 bn. Again access to funds by the states is linked to the reforms programme. The centre has asked for reforms in the following areas:

    • Reforms in Rent Control Act, reform/repeal the Urban Land Ceiling Act
    • Rationalise stamp duties
    • Streamline approval process for construction
    • Simplification in legal and procedural framework for use of agricultural land for non-agricultural purposes

    While the budget has shown the road ahead, it is for the states to move on that path. Many are not happy with the initiatives taken in the budget but then most of these matters are now state issues.



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