The Hindu Business Line : Funding infrastructure

Even the most important economic statement of the Government, the Union Budget, does not seem to do full justice to what is considered the main constraint to growth — infrastructure deficiencies. International organisations have estimated India's aggregate spending on infrastructure at just a fourth of the minimum needed to catch up with just some of the developing countries, leave alone the advanced ones.

According to the Economic Survey, a mind-boggling $320 billion would be needed for infrastructure investments over the Eleventh Plan period, commencing 2007-08. That works out to $64 billion (Rs 288,000 crore) for each of the five years. To bring the magnitude into sharper focus, the allocation under Plan expenditure for the next year is just Rs 205,100 crore. Budget support will be to the extent of Rs 155,000 crore. Clearly, much more than Government's direct support is needed to bridge the infrastructure deficit. However, social infrastructure, including health, irrigation and the rural economy, have been high up on the Finance Minister's list of priorities. For example, the outlay for Bharat Nirman has been stepped up by 32 per cent, education by more than 34 per cent and health and family welfare by nearly 22 per cent. Clearly, the fiscal space available for ports, airports, roads and power could narrow.

While on-going programmes, such as those in highways development, continue to receive their dues, it is good the Government is increasingly looking at facilitating infrastructure investment rather than doing the funding itself. The role of private capital is being recognised, either on its own, as in telecom, or in conjunction with the public sector. Hence, announcements that do not have a direct bearing on the Budget are keenly watched. This time, apart from making a Rs 100-crore contribution to a revolving fund for preparation of bankable projects under the public-private partnership model, the Finance Minister made a number of significant announcements in infrastructure.

Before implementing the Deepak Parekh Committee recommendation to earmark a portion of the country's reserves for infrastructure, the Government needs to build a consensus with the Reserve Bank of India. Permitting mutual funds to start dedicated schemes for infrastructure is long overdue. Municipalities can now pool resources and float bonds that would enjoy tax concessions. This again, reflects the ground reality. Better-run local bodies are getting their schemes rated and are preparing to reduce their dependence on the Central and State governments. Disappointingly, the Budget had nothing to offer in the matter of investment by pension funds or the enhancement of foreign direct investment limits in insurance. These are the two sources that traditionally provide the bulk of the funds for infrastructure.

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