The Hindu Business Line : Budget scrimps on support for infrastructure

The Economic Survey yet again emphasised the availability of quality infrastructure for achieving 10 per cent economic growth. However, the Budget response seems grossly inadequate. China is the only country to achieve an average growth rate of 10 per cent in the last decade, thanks to the consistent improvement in the availability of physical infrastructure. In India the demand-supply gap of physical infrastructure is rising. The index of all infrastructure industries dropped to 4.5 per cent between April and December 2005 from 6.4 per cent growth in the corresponding previous period, and, therefore, much was expected from the Budget in terms of allocations and signals for infrastructure development.

Demand-supply mismatch

The power sector has witnessed some institutional reforms in recent years but the electricity demand-supply mismatch has been rising over the years. Generation growth decelerated 4.7 per cent in April-December 2005 compared to 6.5 per cent for the same period in 2004. As the government expects a higher growth (above 9 per cent) from the manufacturing sector, there would be greater demand from the power sector. Lack of reliable power supply can dampen both manufacturing and overall growth impulses. Since power is dominated by the government, it was generally expected that the budgetary allocation for this sector would be substantial higher.

Moreover, if the government is serious about providing power to 40,000 households next year and to all households by four years, as envisaged by the National Electricity Policy, much emphasis was expected to reduce Transmission and Distribution (T&D) losses. There is no effort or incentive to modernise and improve efficiency, particularly of the T&D infrastructure. Nor have sufficient funds been allocated for realising the mega projects and improving the State Electricity Boards (SEBs). Both China and India depend heavily (more than 60 per cent) on coal for electricity production. India's coal production is not keeping pace with the growing demand of the power sector. Coal production dropped 5.7 per cent in April-September 2005. Surprisingly, there is no increase in outlay for the sector. However, de-blocking 20 million tonnes for the power sector is a positive step.

Given that road transport accounts for nearly three-fourth of total freight and five-sixth of total passengers' movement, there is no special provision for this crucial infrastructure. Though the Golden Quadrilateral project is nearing completion, which was supposed to be completed by 2003, work on most of the north-south and east-west corridors is yet to start. The Government could have outlined few concrete initiatives to augment resources along with more budgetary allocation for this sector.

Ground realities

Important infrastructure industries such as civil aviation and port have not been properly addressed. Private and low-cost airlines has benefited the consumers but there is no improvement on the ground. Airports and their facilities still leave much to be desired. With problems of airport privatisation, in general, and Delhi and Mumbai, in particular, it is fair to believe that modernisation of metro/non-metro airports is far away. Given the problems with privatisation and public-private partnership, the budgetary allocation of Rs 448 crore from Rs 365 crore last year is grossly inadequate to modernise airports.

Similarly, though the lack of proper port facilities with high average turnaround and waiting time are well recognised, there is no special institutional reforms package and private projects for modernising and connecting ports with road and rail networks. Given the resource crunch, the private sector should be allowed into this area, though gradually.

Staying connected

The reforms in the telecommunications sector have resulted in phenomenal connectivity. Yet, India's teledensity level is low compared to China and Brazil. However, things have been positive in this sector, which is reflected in the increase in private investment in telecom sector, which is doing far better than China.

As the Economic Survey points out, there has been slowing in the crude oil, coal, electricity, steel and refinery sectors in April to December 2005-06 and given the low private participation in infrastructure, except telecom in the urban areas, the measures announced by the government for infrastructure development are grossly inadequate.

As for the low participation of the private sector, the major problem is the lack of an appropriate tariff structure. Infrastructure in developing countries, particularly in India is considered as public good, and, thus, the tariffs are kept low, often artificially too, for obvious reasons.

SETTING TARIFFS

Unless the government fixes tariffs for different kinds of infrastructure, it would be difficult to attract private investments.

However, it is a general phenomena that infrastructure is mostly financed by government in developing countries, including China.

There should have been more signals and policies for private financing of infrastructure, though more than finance, the private sector brings in competition, improves quality and delivery dramatically.

The positive moves of the Government include giving special attention to irrigation through Bharat Nirman, education under Sarvasiksha Abhiyan, water and sanitation and rural sector development.

The need of the hour is to give highest priority to infrastructure development to sustain GDP growth at above 8 per cent.

The Budget could have allocated more funds and made bigger outlays to meet the pressing demand for physical infrastructure and given adequate incentives to investors willing to invest in infrastructure projects. measuring of the outcomes of each programme.

(The author is Visiting Researcher, Asian Development Bank Institute, Tokyo. He can be contacted at psahoo@adbi.org)

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