Finance minister focuses on rural infrastructure

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Most of the $1 trillion investment was to come from the private sector. But there was no indication how this will happen

When the finance minister rose to present his third budget, there was a large speculation in financial circles that it will be a ‘make or break budget’. A number of challenges had to be addressed: stressed assets of banks and companies, stimulating demand from the rural sector, ensuring faster growth and increased investments in infrastructure. In some of these areas the finance minister has moved forward.

The infrastructure sector is the engine of growth in all economies. The investments in the sector in the 12th plan were estimated at $1 trillion. Most of it was to come from the private sector. The current budget gives no indication how this will happen. The railways had earlier projected an investment of about Rs 1.21 lakh crore. Given the shortfall in internal resource generation last year and slow trade expansion, this seems unlikely. Unfortunately railways has very little private sector investment.

The national highways and state roads is a focus area of the finance minister, but mostly from public investments. He has mentioned an allocation of Rs 55,000 crore to the National Highway Authority of India (NHAI) and another Rs 15,000 crore of resource from bonds to be floated by them.

The speech mentions a renegotiating regime for PPP. It talks of problems of most of old road contracts as sorted out. But there is no assessment of any new PPP investment. The report of the Kelkar committee on PPP is perhaps yet to be processed.

In the area of power, from where major infrastructure investments are to come, the speech is silent. There is substantial capacity both of gas and coal based plants which is stranded due to lack of demand. With increase in coal cess to Rs 400 per tonnes from Rs 200, the cost of power will go up further and impact demand adversely. The government’s hope that by introducing Ujwal Discom Assurance Yojna (UDAY), a scheme for restructuring debts of discoms, the sector will become financially viable, needs a fresh look.

In the area of ports, the finance minister has made a detailed mention of increasing capacities. Similarly for airports, he has talked of developing nearly 160 airports with the help of state governments. There is however no strategies or indications of a road map or incentives for private investor. This appears more of an intent than a plan.

Rural area infrastructure, including roads and irrigation, has received strong support in the budget. The budget provides Rs 19,000 crore on rural roads and about Rs 18, 000 crore on irrigation. In addition, nearly Rs 2.25 lakh crore given to panchayats under XIV finance commission grants will also be spent largely on rural infrastructure. MGNREGA has allocation of about Rs 38,500 crore, part of which too will be spent on creating rural infrastructure.

The budget has a strong focus on rural India. But any strategy on how private investments in infrastructure will be generated is missing. In its absence, growth of 7-7.75 per cent as mentioned by the Economic Survey might not happen.

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