LEAD ROLE OF GOVERNMENT FOR INFRASTRUCTURE DEVELOPMENT TO CONTINUE

February 28, 2008

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Economic Survey 2007-08

PRESS INFORMATION BUREAU

GOVERNMENT OF INDIA

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Lead role of Government for Infrastructure Development to Continue

New Delhi, Phalguna 08, 1929

February 28, 2008

Recognizing the importance of development of adequate infrastructure for sustaining the growth momentum and to ensure inclusiveness of the growth process, the Government will continue to play a lead role in infrastructure development during the Eleventh Plan. The Economic Survey 2007-08 tabled in Parliament today, states that accompanying the recent moderation in industrial growth, the growth performance of some segments of the infrastructure such as power generation and movement of railway freight and also the production of universal intermediates like steel, cement and petroleum have shown a subdued performance during April-December 2007-08 as compared to the corresponding period last year. In the power sector, though the plan capacity addition is unlikely to be achieved, the growth in capacity in the current year is distinctly higher than in the previous years. The movement of cargo handled by major ports and air cargo has showed improved performance as compared to the corresponding period last year. The highly competitive telecom sector has maintained its phenomenal growth, the Survey adds.

With the rapid growth of economy in the recent years, the importance and urgency of removing infrastructure constraints have increased. The Government has made an effort to facilitate the entry of private enterprise into this sector through changes in the legal framework. The Survey mentions that the role of private sector participation has also been facilitated by technological change that allows unbundling of infrastructure so that the public and the private sectors can take up the components according to their capacities.

The Survey states that the recent moderation in the growth in the industrial sector has raised concerns in some quarters about sustainability of high growth of the sector. To deal with the situation emerging from the slow down of some export oriented sectors of relatively low import intensity including textiles, handicrafts, leather etc. the Survey states that the Government took certain measures to tide over the situation in short run. It emphasises that, over the medium term, there is little choice but to improve productivity even if there are issues pertaining to the exchange rate of currencies of competing countries.

During the Eleventh Five Year Plan, the power sector is expected to grow at 9.5 per cent per annum. The Survey mentions that a capacity addition of 78,577 MW has been proposed for the plan period to fulfill the objective of the National Electricity Policy 2005. A number of projects envisaged for the Eleventh Plan have made steady progress and most of these are in a position to be commissioned well within the Plan period. It is expected that the total capacity addition during the current financial year would be 10,821.8 MW with thermal, hydro and nuclear accounting for 8,015 MW, 2,587 MW and 220 MW respectively. The Survey also mentioned that for development of coal based Ultra Mega Power Projects (UMPPs) each with a capacity of 4,000 MW or above, project specific shell companies have been set up as wholly owned subsidiaries of the Power Finance Corporation Limited to facilitate tie up of inputs and clearances. The bidding process in respect of Sasan, Mundra and Krishnapatnam UMPPs have been completed. For the development of hydro power potential, the Survey also states that a task force has been constituted under the Chairmanship of Minister of Power. The task force shall examine and resolve issues relating to hydro power development. To achieve the goal of electrifying all unelectrified villages and hamlets and providing access to the electricity to all households as envisaged under the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGYY), the Government has approved its continuation during the Eleventh Five Year Plan period. With an initial outlay of Rs. 28,000 crore, about 1.15 lakh unelectrified villages and 2.34 crore rural BPL households have been envisaged to be covered in Phase-1 of the scheme.

The Survey states that improved resource management, through increased wagon load, faster turn around time and a more rational pricing policy has led to a perceptible improvement in the performance of the Railways during 2005-06 and 2006-07. During April-November 2007, the total revenue earning freight traffic grew at 8.2 per cent as compared to 9.9 per cent in the corresponding period of the last year. The Survey mentions that the Indian railways have been taking certain pro-active initiatives in the area of tariff and fare fixations and commercial practices. There has been conscious thrust on bringing in transparency, simplification and making rail tariff competitive to attract more traffic.

In Road sector, the Survey states that 7,962 kilometers of National Highways under National Highways Development Project (NHDP) with the bulk of 5,629 kilometers lying on Golden Quadrilateral (GQ) was completed till 30^th November, 2007. About 7,744 kilometers of National Highways are under construction. Nearly 96 per cent works on GQ have been completed by November 2007 and North-South and East-West Corridors are expected to be completed by December this year. The upgradation of 12,109 kilometers has been approved by the Government under NHDP Phase-III at an estimated cost of Rs. 80,626 crore. In addition to the above mentioned approved projects, the Survey mentions that there is a proposal for two-laning for 20,000 kilometers of National Highways under NHDP Phase-IV. The Government has also approved six-laning of 6,500 kilometer of National Highways under NHDP Phase-V at a cost of Rs. 41,210 crore. The Government has also approved the construction of 1,000 kilometers of express ways at a cost of Rs. 16, 680 crore under NHDP Phase-VI and construction of ring roads and service roads at the same cost under NHDP Phase -VII. For the North-Eastern region, the Ministry of Road Transport and Highways has set up a high power

inter-ministerial Committee to appraise and coordinate individual sub-projects under Special Accelerated Road Development Programme for the region. An investment of Rs. 3,14,152 crore has been envisaged for the roads and bridges sector during the Eleventh Five Year Plan.

Regarding Civil Aviation Sector, the Survey states that with the liberalization of Indian skies, the airlines market in India have witnessed several new players which has made it necessary for the players to build on their competitive strength. The Government has also decided to merge the two national carriers i.e. Indian Airlines Limited and Air India Limited into a new 100 per cent Government of India owned company. The move was aimed at building a strong and sustainable business entity. As per this arrangement, the National Aviation Company of India Limited was incorporated. The Survey further adds that the number of domestic and international air passengers (combined) has almost doubled between 2004 and 2007. Cargo traffic has increased by more than 45 per cent between 2003-04 and 2006-07.

During April-October 2007, the cargo handled by major ports registered growth of 13.9 per cent against 9.5 per cent in the corresponding seven months of last year. The Survey states that there was an impressive growth of 13.9 per cent per annum in container traffic during the Five Year ending 2006-07.

The telecom sector continued to register significant growth during the year and has emerged as one of the key sector responsible for India’s resurgent economic growth. With more than 270 million connections, India’s telecommunication network is the third largest in the world and the second largest among the emerging economies of the Asia. This has been possible due to the supportive Government policies coupled with private sector initiatives. The tele-density has also increased 12.7 per cent in March 2006 to 23.9 per cent in December 2007. Rural tele-density has increased to 7.9 per cent at the end of November 2007. The total FDI equity inflows in the telecom sector from August 1991 up to July 2007 have been Rs. 20,718 crore which is 8.1 per cent of the total FDI equity inflows into India during the period. Giving the future scenario, the Survey states that it is proposed to achieve rural tele-density of 25 per cent by means of 200 million rural connections at the end of Eleventh Five Year Plan. It is also envisages that internet and broadband subscribers will increase to 40 million and 20 million respectively by 2010. It is also envisaged in the Eleventh Plan to provide broadband for all secondary and higher secondary schools, all public health care centres and all gram panchayats.

Regarding Urban infrastructure, the Survey states that with the launching of Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in 2005-06, the reform process of urban local bodies has begun. There is now a better appreciation at the state level of the importance of developing and sustaining the infrastructure through appropriate user charges. While sanctioning the projects, efforts are made to ensure public-private participation in the areas where it is feasible. An amount of Rs. 2,805 crore has been provided for the year 2007-08 for the Sub-Mission on Urban Infrastructure and Governance. 279 projects have been sanctioned at an approved cost of Rs. 25,287.08 crore for 51 cities out of the listed 63 Mission cities across 26 States till January 1, 2008.

While sanctioning these projects, highest priority has been accorded to sectors that directly benefit common man and urban poor namely, water supply, sanitation and storm water drainage. 90 projects are expected to be completed by December this year. A total investment of Rs. 3, 35,350 crore have been envisaged by the Mission city for the development of urban services.

Outlining the investment requirement for the infrastructure during Eleventh Five Year Plan period, the Survey states that to achieve the target rate of growth of 9 per cent for the Plan period, an increase of investment from around 5 per cent of GDP in 2006-07 to 9 per cent of GDP by the end of the Plan period is envisaged. The investment in physical infrastructure alone has been estimated to be about Rs. 2,002 thousand crore (at 2006-07 prices). Such a large magnitude of investment during the Plan period would need to be financed through non-debt and debt resources of the order of Rs. 1, 064 thousand crore and Rs. 996 thousand crore respectively. Keeping in view the need for financing infrastructure, the Ministry of Finance constituted a Committee in December 2006 to under the Chairmanship of Shri Deepak Parekh to identify the constraints and suggest measures for financing infrastructure. The Committee in its report submitted in last year has stated that there are macro-economic and institutional constraints in financing infrastructure. To maximize the role of public-private partnerships (PPPs), the Department of Economic Affairs has taken several major initiatives in the matters concerning PPPs including policy, schemes, programmes and capacity buildings. While encouraging PPPs constraints have been identified and several initiatives have been taken by the Government to create enabling framework for PPPs by addressing issues relating to policy and regulatory environment. To address the financing need of PPPs projects, various steps have been taken such as setting up of the India Infrastructure Finance Company Limited (IIFCL) to provide long tenor debt to infrastructure projects and launching of a Scheme for financial support to PPPs in infrastructure to provide Viability Gap Funding to PPPs projects.

The challenges in implementing the infrastructure projects are immense. The Survey states that there is need to develop appropriate mechanism for financing infrastructure, especially the development of a domestic debt market is overarching. It is also important to ensure synergy in the efforts being made to develop different types of infrastructure through effective coordination between different agencies. “These challenges are serious, but they are by no means insurmountable”, the Survey adds.

Source: pib.nic.in