Financial Daily from THE HINDU group of publications
Thursday, Jul 08, 2004
Industry & Economy
Call to encourage private investment in infrastructure
New Delhi , July 7
RECOGNISING that sustainable economic growth hinges on the availability of efficient infrastructure, the Economic Survey has called for a sound policy framework to spur investment, especially by the private sector.
"A sound policy framework is required, which emphasises sound enforcement of user charges, transparency and high quality regulation. Conversely, once sound policies fall into place, we may expect a sharp payoff in terms of an improvement in the flow of investment," the Survey says.
The Survey says that private investments in the infrastructure sector would be "particularly beneficial", given the fiscal constraints that limit State funding of such infrastructure projects.
The Survey points out that while gross capital formation in infrastructure investment nearly doubled from Rs 45,940 crore in 1993-94 to Rs 90,890 in 2002-03, as a proportion of the gross domestic product (GDP), it declined from 5.4 per cent to 3.7 per cent during the period.
"The investment in infrastructure has been grossly inadequate, despite the establishment of specialised financial institutions. In the absence of a strongly enabling environment, the private sector has not been able to compensate for the decline in public spending on infrastructure," it says
The Survey recognises that some part of the growth and recovery in the economy is partly due to improvement in infrastructure. The Electricity Act, 2003, and institutional changes such as the unified access service licensing regime have yielded rich dividends, it says.
"Benefits have accrued from greater emphasis on collection of appropriate user charges, introduction of new technologies, private sector production and regulatory frameworks that foster competition. The way forward lies in strengthening this emphasis," it says.
The Survey feels that the Government should explore the potential of the new viability gap funding mechanism announced in the Budget 2003-04 for leveraging public money through public-private partnership. It also calls for clearly defined and transparent guidelines in this regard.
The Survey has praised the privatisation of the Mumbai-Pune section of National Highway 4 as "an important and pioneering" development.
The Maharashtra State Road Development Corporation had been servicing the debt incurred for the Rs 1,630-crore expressway, while earning a toll of only Rs 85 crore a year. Now, the operation and maintenance of the expressway and the earlier highway (that serves as an alternative toll-free road) has been handed over to a private company for an upfront payment of Rs 918 crore.
Under the agreement, the private operator would also have to upgrade the entire length of the earlier highway to four lanes by 2006.
Similarly, the Survey lists minor ports, private airlines, upgradation of Delhi and Mumbai airports, two greenfield airports at Bangalore and Hyderabad and Surendranagar-Pipavav railway gauge conversion as welcome examples of joint public-private initiatives.
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