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A critically important area

In the context of India’s ever widening physical and social infrastructure deficit, there were high expectations that the Finance Minister would give a fillip to the sector in the budget. In view of the economic downturn and the need for a massive stimulus, it was widely expected that, like other countries such as China and the United States, India would embark on large infrastructure building projects as a countercyclical measure. The three stimulus packages of last year and the interim budget presented in February did not significantly increase expenditure on physical infrastructure although they did address the concerns of rural infrastructure to some extent. The absence of fiscal headroom was then cited as one major reason for the relatively tepid stimulus measures. But even in a budget that has ‘growth with equity’ as the central theme and countenances a fiscal deficit of 6.8 per cent of the GDP, there is no spectacular policy initiative in this critical area. However, the outlay on the government’s flagship urban infrastructure programme, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), has been stepped up by 87 per cent to Rs.12,887 crore. Besides, several government-sponsored schemes aimed at improving rural infrastructure are set to receive higher allocations.

Nearly all the proposals to boost infrastructure are incremental in nature. Public private partnerships (PPP), which have been successful in diverse areas such as telecommunications and power generation, would be further supported by asking the India Infrastructure Finance Company to refinance 60 per cent of commercial bank loans for PPP projects in certain critical areas. The government has also formalised “take out financing”, a scheme popular in other countries, for releasing long-term commercial bank funds for infrastructure. It is certain that the government cannot hope to bridge the infrastructure deficit through the budget process alone. Public policy should aim at creating a simple, transparent, and flexible framework that will also incorporate strong execution capacities and the State governments should be involved closely in that effort. A vibrant corporate bond market will be absolutely necessary for long-term financial intermediation. In the years to come, the Union budget might well be a catalyst, ensuring capital for infrastructure development but the Centre and the States need to strengthen their policy framework. .

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