Page 245 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 19: Sectoral Performance II: Role of Infrastructure in Economic Development

Infrastructure investments are, by their very nature, long gestation activities. If private participation Notes
has to be encouraged to enter the infrastructure, there is the need to develop domestic capital markets
which will make funds available for long periods through long term debt instruments. The Asian
Development Bank (ADB) has provided a loan of $ 300 million for the Public Sector Infrastructure
Facility (PSIF) in order to support private sector infrastructure projects through the development of
the long-term debt market. The money will be borrowed by ICICI, IFCI and SCICI for onlending to
infrastructure companies through long term debt instruments — viz., bonds and debentures, for a
minimum of 15 year maturity.
In many developed and developing countries, contractual savings in the form of pension and provident
funds are being tapped for infrastructure financing, since these savings are long term in nature and
could act as a source of funds for debt instruments with long term maturities. The Government will
have to introduce appropriate reforms in public provident funds, pension funds and insurance
companies so that the private sector can have access to these funds for infrastructure development.
The Government of India has announced various measures to attract foreign investment in
infrastructure.
For instance, the Government has allowed automatic approval for foreign equity participation upto
74 per cent in key infrastructure industries such as electricity generation and transmission, non-
conventional energy generation and distribution, and construction activities in the area of roads,
bridges, railbeds, ports and harbours.
In recent years, the Government has undertaken many sector-specific reform measures. For instance,
telecom projects are to be treated as infrastructure and are to receive all the fiscal concessions available
for infrastructure projects — like tax holiday and concessional project import duty. The Government
of India has promulgated an ordinance to facilitate private investments in the transmission of electricity,
as distinct from generation and distribution of electricity. The Government has also announced
guidelines for private investment in highway development through the Build-Operate-Transfer (BOT)
route - these would provide more financial concessions and also facilitate the preparation of detailed
feasibility reports, clearance for the right of way of land, relocation of utility services resettlement
and relocation of the affected establishments, environmental clearance and equity participation in
the highway sector. Similar guidelines have been given for private participation in ports.
The Expert Group on Commercialisation of Infrastructure Projects has also recommended the setting
up of an autonomous regulatory body for each infrastructure sector on the lines of SEBI to ensure fair
competition among public and private operators, protect consumer interests, particularly the needs
of vulnerable and weaker sections, ensure public safety, environmental sustainability, etc.
What will be the future role of public sector enterprises in the field of infrastructure, after the entry of
the private sector ? The public sector enterprises will continue to shoulder the major burden of
providing critical infrastructure services but public sector reforms would be necessary to broad-base
their management, to upgrade their technology, to improve their performance and quality of services
and to generate adequate investible resources through rationalisation of service charges and better
recovery of costs.
Public Private Partnership and Infrastructure
Given the need of mega infrastructure required, public sector cannot cope with the need of the hour.
Though the Government has been emphasizing the importance of infrastructure for the development
of the economy, we witness a cut back in the investment by the government in the infrastructure,
both at the central and state level. In the last few years, public private partnership in the infrastructure
sector is gaining importance.
Economic Survey 2009-10, underlines the importance of PPP projects and says, “PPPs offer a number
of advantages in terms of leveraging public capital to attract private capital and undertake a larger
number of infrastructure projects, introducing private-sector expertise and cost-reducing technologies
as well as bringing in efficiencies in operation and maintenance. Hence, more than their fiscal
implications, PPPs are tools to fulfill the basic obligations of Governments to provide better

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