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Indian Economic Policy

Notes (ii) to ensure an adequate supply within the country of research scientists of higher quality and
recognise their work as an important component of the strength of the nation; and
(iii) to encourage and initiate with all possible speed programmes for the training of scientific and
technical personnel on a scale adequate to fulfil the country’s needs in regard to science and
education, agriculture, industry and defence; and
(iv) to ensure for the people of the country all the benefits that can accrue from the acquisition and
application of scientific knowledge.
This 1958 Resolution gave explicit recognition to the importance of research and development in the
economic growth of India.
19.6 Private Investment in Infrastructure: Outlook and Prospects

The Government of India has increasingly realised that infrastructure need not be a public sector
monopoly. In the past, the responsibility for providing infrastructure services was vested with the
Government— the reasons being : heavy capital investments, long gestation periods, externalities,
high risks and low rates of return on investment. The infrastructure under government ownership
and management has, however, proved thoroughly inefficient and corrupt. The demand for
infrastructure facilities and services has always outpaced supply; besides, the quality of the existing
supply is extremely poor. The consequent shortfalls in capacity and inefficiencies in infrastructure
facilities are patent in the increasingly congested roads, chronic transport bottlenecks, frequent power
failures and load shedding, long waiting lists for installation of telephones and shortage of drinking
water. The widening gap between demand and supply of infrastructure and the extremely poor
quality of the existing supply raises important questions concerning the sustainability of economic
growth of the country in the coming years.
In order to sustain an annual GDP growth rate of 7 per cent, it is imperative to accelerate the rate of
investment in infrastructure. According to the Finance Ministry’s Expert Group on Commercialisation
of Infrastructure Projects (June 1996) the total infrastructure investment requirements would be about
` 40,000 crores to ` 45,000 crores during 1996-2001 and another ` 75,000 crores during the next 5 years
(2001- 06). This order of massive investment requirements is clearly beyond the capacity of the
Government. The financial resources available to the Government are very limited. At the same time,
public debt and other government liabilities are increasing by leaps and bounds. Accordingly, the
creation of quality infrastructure will need the infusion of private capital, both domestic and foreign.
At the same time, technological and organisational innovations have made it possible for the private
sector to enter the infrastructure.
Since 1991, Government strategy attaches high priority to the development of efficient infrastructure
and towards creating an enabling environment for private participation in the infrastructure sector.
Besides, public-private partnership can also encourage better risk sharing, accountability, cost recovery
and management of infrastructure. Some of the important steps in this direction are :
(a) The Government set up the Infrastructure Development Finance Company in January 1997,
under the Indian Companies Act, with an authorised capital of ` 5,000 crores.
(b) The Government has announced a tax holiday to companies developing, maintaining and
operating infrastructure facilities, such as roads, bridges, new airports, ports and railway projects
and also those dealing with water supply, sanitation and sewerage projects.
(c) The Government has permitted income tax exemption on dividend, interest or long term capital
gains earned by funds or companies set up to develop, maintain and operate an infrastructure
facility.
(d) The Government has raised the corpus of the National Highways Authority of India Ltd (NHAI)
by ` 200 crores to enable it to leverage funds from the domestic and international capital markets.
(e) The Government has enhanced tax rebate limits for investments in shares and debentures offered
by infrastructure companies; this is to channelise domestic savings into such investments.

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