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Infrastructure - The Key to Rapid Growth

Infrastructure - The Key to Rapid Growth

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Published by Abhijit Jadhav

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Published by: Abhijit Jadhav on Sep 23, 2009
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INFRASTRUCTURE: THE KEY TO RAPID GROWTH
Like most of the developing countries, Indian economy is also a diversified andresilient in nature. Similarly, like most of the developing countries, huge sums of funds are being spent on the development of infrastructure, both in the private aswell as in the public sectors. But, it is felt that the infrastructure spending isshorter than what is ideally required for achieving the required higher growthrate. As per the estimation of the Planning Commission of India, the totalrequirement of funds for financing the infrastructure requirements during theEleventh Five Year Plan (2007-12) is to the tune of USD 500 billion, which is about2.5 times of the funds provided for this purpose during the Tenth Five Year Plan.Realizing that the government may not be able to fund the huge requirement forinfrastructure projects required to be taken up for rapid growth of the economy,the Union government and various State governments have come up with therequired Public-Private Partnership (PPP) framework to facilitate the privateparticipation in the infrastructure sector in a big way. The government has alsoasked the Infrastructure Investment Finance Company to earmark a corpus of over 8.15 billion US dollars for this purpose. This is in addition to $320 billion tobe spent by the government for up-gradation of sea ports, railroads, highwaysand airports over the next about 15 years.A massive 494 billion dollar investment is proposed in the Eleventh Five-Year Plan(2007-12), which would increase the share of infrastructure investment in thissector from 5 per cent of the GDP at the beginning of Eleventh Plan to 9 per cent
 
during the Plan. This massive investment in the infrastructure sector is envisagedthrough huge doses of public spending through several flagship nationalprogrammes, as well as through active participation of the private sector in thisgigantic effort. To facilitate PPP in infrastructure sectors, the government has notonly introduced the model concession agreements but also permitted increasedpercentages of Foreign Direct Investment (FDI) in various sectors. Majorexpansion of infrastructure in the sub-sectors likerailways, ports, civil aviation, road, power, telecommunications and housing isplanned to be achieved during the plan period. Urban infrastructure is targeted tobe strengthened through the Jawaharlal Nehru National Urban RenewableMission, while the general rural infrastructure is proposed to be up-gradedthrough implementation of national programmes like Bharat Nirman, RajivGandhi Gramin Vidyutikaran Yojana, and National Rural Health Mission etc.
Private Participation
Policy makers realise that the basic goal of inclusive development laid down forthe Eleventh Five Year Plan may not be achieved if the basic infrastructurefacilities are not available in the urban as well as rural areas of the country. In thisregard, the participation of the private sector is considered to be very important.Partnership with the private sector had been continuing in the country during thepast several years but there was no defined uniform policy and legal frameworktill recently.With a view to facilitate the private and foreign investors to pump funds intoIndian infrastructure projects, and to standardize the concessions to be extended
 
to the private investors under the PPP, the government of India carried outspecial workshops in various parts of the country. Main objectives of theseworkshops were to bring out the developmental relevance of the PPP in thecurrent context, assist interested in the PPP to go ahead, understand and addressthe concerns of the potential PPP investors, and international experience sharingfrom successful PPP models across the world.The government of India has set up a PPP cell in the Ministry of Finance,Department of Economic Affairs. It is also felt that many PPP projects may not beeconomically viable but are essentially required to be executed. For such projects,Viability Gap Funding (VGF) Scheme has been introduced. This is a special facilityaimed at supporting such infrastructure projects which are economically andsocially justifiable but are not commercially viable. Under the VGF Scheme,upfront assistance upto 20 per cent of the project cost can be sanctioned as grantfor such PPP projects.No facilitation is complete without making institutional arrangements forfinancing. The government of India has set up India Infrastructure FinanceCompany Ltd (IIFCL) as a wholly government-owned company to facilitate long-term funding of infrastructure projects. IIFCL provides direct financing, as well asrefinancing of such projects in public, private or PPP sector.The government has also paid special attention towards the capacity building atthe Central and State levels. Capacity building needs include training of the keypersonnel, development of standard toolkits, Model Concession Agreements,

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