The 2010-11 Budget and infrastructure

K.R. Sudhaman**

Infrastructure deficiency is one issue that required urgent attention if India were to move on to the high economic growth trajectory of nine per cent or more. One would not be wrong in saying that the 2010-11 Budget has made an honest attempt to work towards removing this bottleneck.

The Finance Minister, Shri Pranab Mukherjee has recognised this fact and said during his budget presentation in Parliament that “accelerated development of high quality physical infrastructure, such as roads, ports, airports and railways is essential to sustain economic growth.”

“While addressing the policy gaps in this sector, I propose to maintain the thrust for upgrading infrastructure in both rural and urban areas. In the Budget for 2010-11, I have provided Rs 1,73,552 crore, which accounts for over 46 per cent of the total plan allocation, for infrastructure development in the country,” he stressed.

The Plan allocation itself has been stepped up to Rs 3,73,000 crore for 2010-11, which is Rs 48,000 crore more than Rs 3,25,000 crore plan spending in the current financial year.

Investment in infrastructure development has gone up from 4.5% of Gross Domestic Product in 2004-05 to 6% in 2007-08. But it is still low compared to Eleventh Five Year Plan target to raise it to 9 per cent of GDP by 2012. Global economic crisis slowed down investments in infrastructure in 2008 because of reduced flow of resources from abroad.

But a conscious effort by the Government to pump-prime the economy though fiscal and monetary stimulus measures has seen revival of investments in infrastructure in the current year. To step up investment in infrastructure the pre-budget economic survey says efforts are needed to channelise long-term contractual savings to infrastructure on a much larger scale.

It is in this context the announcement in the budget that Rs 20,000 additional investment in long-term infrastructure bonds will entail tax benefit to individual tax payers is welcome. This would be over and above the existing limit of Rs one lakh on tax savings. This will help in mopping up more money for infrastructure funding.

Apart from massive step up of plan allocation to infrastructure sector, the Finance Minister said that to make a visible impact in the road sector, Government has targeted construction of national highways at the pace of 20 km per day.

To push the pace of implementation, changes have been made in the policy framework, especially on projects being implemented through public-private partnership.

Also allocation to road transport has been stepped up by 13 per cent to Rs 19,894 crore from Rs 17,520 crore.

Railways too get Rs 950 crore more budgetary support at Rs 16,752 crore for modernisation and expansion of network

To complement the dedicated freight corridor, the Delhi-Mumbai industrial corridor project has been taken up for integrated regional development. Preparatory activities have been completed for creation of six industrial investment nodes with eco-friendly world class infrastructure.

The long-term financial assistance to infrastructure projects by India Infrastructure Finance Company is to go up to 20,000 crore by March 2011 from the Rs 9,000 crore in the current year.

The Shipping Sector gets around Rs 6,500 crore, Civil Aviation, about Rs 9.500 crore and rural roads about 12,000 crore in the budget. These amounts are substantial step up from the current year.

According to Economic Survey, various state governments have already taken up 450 projects under the public-private partnership model involving total investment of Rs 2.24 lakh crore

The metro rail projects being implemented in Delhi, Mumbai, Kolkata, Chennai and Bangalore at the moment involves an investment of over Rs 70,000 crore.

The modernisation and upgradation of airports in major cities involve huge investments, most of them have already been completed or are in advance stage of completion.

The allocation to power sector has been doubled to Rs 5,130 crore which is considered a significant development considering the fact there is substantial short-fall in the

target for setting up new power generation capacity.

Economists have welcomed the infrastructure spending in the budget saying this would help in pushing up growth and higher spending in rural infrastructure would lead to more job creation.

Infrastructure investments made by insurance companies have been steadily increasing and by the end of 2007-08 it stood at nearly Rs 94.000 crore. The share of public sector companies was over 94%. Infrastructure industries have started tapping private placements as well for mobilising resources. Private placement could be through equity as well as debt. Funds raised only through debt for infrastructure has gone up from a mere Rs 3,800 crore in 2007-08 to Rs 19,000 crore in 2008-09. In April-December 2009, as much as Rs 12,200 crore has been raised.

Equity financing too was going up and all these point to the fact that Government was committed to ensuring that growth is not impeded for want of infrastructure.

Power sector is one area where power generation capacity addition was below target in the first two years of eleventh five year which began in April 2007. But it has started picking up and the Finance Minister, Shri Pranab Mukherjee is confident that revised new power generation target of 62,000 mw in eleventh plan ending March 31, 2012 will be achieved.

Apart from stepping up allocation of power sector in the budget, the Minister has proposed to introduce competitive bidding process for coal blocks for captive mining. Nearly three-fourth of power generation in the country is coal based and this move will ensure greater transparency and increased participation in production for these blocks. He has proposed to take steps to set up a Coal Regulatory Authority to create level playing field in the coal sector. This would facilitate resolution of issues like economic pricing of coal and benchmarking of standards of performance.

Development of solar energy too has got a boost in the budget as plan outlay for the sector has been stepped up by 61 per cent to Rs 1000 crore in 2010-11 from Rs 650 crore in 2009-10. An additional Rs 500 crore is to be spent in Ladakh region of Jammu and Kashmir for setting up solar, small hydro and micro power projects.

Flow of Foreign Direct Investment in the infrastructure sector has been steadily increasing. It was Rs 5,400 crore in 2008-09. Up to November this fiscal, FDI flow has been around Rs 4,500 crore. In 2010-11, it is expected to be much more. Most of the FDI flow in infrastructure has been in power and telecommunication sectors.

Overall the budget augurs well for the Infrastructure which has been given necessary push to ensure the growth momentum is sustained in the coming year. This is good economics at a time when the economy is on path to recovery as it would ensure there is no constraint to capacity addition when demand picks up gradually.

**K.R. Sudhaman

**Economic Affairs Editor, Ticker Plant News

Disclaimer : The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of INVC