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Infrastructure: Execution is the key - Views on News from Equitymaster
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  • Mar 5, 2003

    Infrastructure: Execution is the key

    During times of economic slowdown it is a widely observed phenomenon that the Government tries to increase itís spending on infrastructure activities in order to impart the much needed stimulus to the core industrial sectors like steel, cement, power and coal. In the current budget the Government has done just that. It has announced infrastructure projects worth nearly Rs 600 bn.

    These projects range from a wide variety of sectors like roads, airports, seaports, railways and convention centers. But what is noticeable here is that fact that a considerable amount of the funding requirement is to come from the participation of the private sector. This means less burden on the government finances and that the much needed infrastructure related spending can be implemented with out worsening the fiscal deficit situation further.

    Among the projects announced, road projects are again the focus. The new road projects announced entail a length of nearly 10,000 Kms with an estimated cost of Rs 400 bn. An initiative of this magnitude comes after the ambitious Golden Quadrilateral and North-South and East-West corridor projects that were announced way back in October 1998. The outlay for these projects was Rs 540 bn.

    Project Budgeted expenditure
    (Rs bn)
    New road project 400
    Airport and seaport projects 110
    Rail vikas project 80
    Convention centers 10
    Total 600

    The highway projects, namely Golden Quadrilateral and North-South and East-West corridor, projects have been financed in part by the government, cess on diesel and petrol and multilateral lending agencies like the Asian Development Bank (ADB) and World Bank. Private participation has also help fund these projects considerably as private parties are being offered the option of building and operating these roads and in turn collecting a toll for the same.

    The road projects announced in the recent budget, however, entail larger private participation and no announcement has been made regarding borrowing from the ADB or World Bank. The private players are expected to invest in building the roads and then earn by collecting toll for usage of these roads. The Government plans to fund the gap between the earnings of private parties and the expected revenues from each project. This could translate to the fact that the government could pay up to Rs 20 bn to compensate for the short fall in expected earnings. Additional cess on diesel will also be utilized to fund this project. Work on nearly 3,000 kms of roads is to be started in the first year itself.

    North South & East West
    Phase I & II
    Total Length in Km 5,846 7,300 363 653
    % completed 20% 11% 15% 21%
    % Under Implementation 78% 9% 31% 27%
    Balance % to be awarded 2% 80% 54% 52%

    What is significant here is the fact that these new road projects are exclusive of the already existing Golden Quadrilateral and North-South and East-West corridor projects. This would mean additional jobs. Road projects apart from stimulating demand, for industries like steel and cement (Read more for the impact on the cement industry) provide employment. This in turn helps improve consumption demand.

    Judging by the progress of the Golden Quadrilateral and the corridor projects that have attractive private investments, the new road projects seem to be realistic to implement. However, implementation in time continues to be an issue. Already there are indications that the Golden Quadrilateral project may get delayed. Delays increase the cost of the project. The infrastructure projects initiated by the government have already helped a great deal to boost demand for commodities like steel and cement as well as coal. While the governmentís mind is in the right place a far as stimulating demand is concerned, the question is whether it will be able to meet its deadlines.



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