labels: economy - general, union budget 2007
Infrastructure: The new thrust sectornews
Rajiv Singh
28 February 2007
28 February 2007

The union budget has tried to put the focus back on infrastructure, providing budgetary support to some major projects for the fiscal 2007-08. According to a statement today by the Central Statistical Organisation, the country''s $854 billion economy expanded at the slowest pace in a year last quarter. This would have added a furrow, howsoever mild, to finance minister P Chidambaram''s brow.

The Economic Survey released yesterday, estimates that the economy will grow at 9.2 per cent in the fiscal year, ending March 31, the fastest pace since 1989. The growth rate is second only to China''s, among the world''s major economies. If the pace is to be sustained, infrastructure woes will have to be addressed. Analysts point out that infrastructure shortfalls are affecting supplies and boosting manufacturing costs.

According to new budgetary provisions, existing Government spending on infrastructure including those on ports, power generation and roads will be raised by 40 per cent to Rs1.34 trillion ($30.2 billion) in the coming fiscal.

Estimates of the investments required put the figure at Rs1,450,000 crore or about $320bn, during the 11th 5-year plan. Such massive investments can only be achieved throuh a combination of public investment, public-private partnerships (PPP) and solely private investments on a case to case basis.

The committee on infrastructure estimates that Rs220,000 crore would be required for modernisation and upgradation of highways, Rs40,000 crore for civil aviation, Rs50,000 crore for ports and Rs300,000 crore for the Indian Railways. In the case of teh Railways atleast 40 per cent is expected to come from the PPP mode.

Tariff reduction
Chidambaram has reduced import tariffs, for the second time in five weeks, in a move aimed at reining in prices. Maximum customs rate for manufactured goods have been slashed to 10 per cent from 12.5 per cent. The move aligns the rates with those of the Association of Southeast Asian Nations (ASEAN), where tariffs range between zero and five per cent.

According to finance ministry estimates, India is producing about 8 per cent less electricity than it needs, which affects gross domestic product by at least ten per cent.

In this regard Chidambaram has pointed out to the parliament, that apart from the two Ultra Mega Power Projects (UMPPs) already initiated, a final decision on at least two more would be made by July 2007.

Budgetary support for accelerated power development and reforms programme (APDRP) had been increased to Rs800 crore, along with allocation for the Rajiv Gandhi Grameen Vidyutikaran Yojana as well as the national highways development programme.

According to the finance minister, with the accelerated power development and reforms project (APDRP) significantly reducing aggregate technical and commercial losses in 213 towns, the project was being restructured to cover all district headquarters and towns with a population of more than 50,000. Budgetary support for APDRP has now been increased from Rs650 crore in 2006-07 to Rs800 crore for the coming fiscal.

Chidambaram also announced an increase in allocation for the Rajiv Gandhi Grameen Vidyutikaran Yojana from Rs3,000 crore in 2006-07 to Rs3,983 crore in 2007-08.

Highways constitute only about 2 per cent of the country''s roads, though they carry almost 80 per cent of the goods transported across the nation. Ships take an inordinately long time to load and unload cargo at the country''s major ports.

Chidambram said that provision for the National Highways Development Programme (NHDP) had been enhanced from Rs9,945 crore in 2006-07 to Rs10,667 crore for the coming fiscal. In this regard he also mentioned that the road-cum-rail bridge over the Brahmaputra at Bogibeel, Assam would be taken up as a national project.

Public Private Participation
Chidambaram noted that the public-private partnership model had enabled greater private sector participation in infrastructure building. So far, under the viability gap funding scheme, 37 proposals have been received of which 21 proposals have been granted ''in-principle'' approval with a total project cost of Rs9,842 crore and an estimated viability gap funding of Rs.2,521 crore. In this regard Chidambaram said that there was a need for a more aggressive approach in preparing a shelf of bankable projects that could be offered for competitive bidding.

Project preparation
Apart from the initiatives already taken towards building capacity and engaging consultants, Chidambaram has also proposed the setting up of a revolving fund to hasten project preparation. The fund will have a corpus of Rs100 crore and will contribute up to 75 per cent of the expenditure undergone in the preparation of reports. The money will be advanced in the form of interest free loans and will eventually be recovered from the successful bidder.

According to analysts, thanks to an accelerating economic growth and buoyant tax revenues, finding resources for spending on infrastructure should not pose too much of a problem.


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Infrastructure: The new thrust sector