Rapid-response measures have been instituted by the Reserve Bank of India and the government to alleviate the liquidity crunch arising from global financial developments.
Lowering the repo rate, facilitating ECB and other monetary measures will lift flagging confidence levels and contribute to immediate stability. The larger issue now is to maintain the investment and demand momentum that has driven the high-growth trajectory of the Indian economy over the past five years.
The options for extensive countercyclical fiscal measures may be limited, but there is scope for releasing investments already planned and budgeted into the economy.
One way of doing this is to fast-track large infrastructure projects that are in the pipeline. Apart from pumping demand into the economy, the infrastructure deficit, which reduces the competitiveness of the Indian economy in the global environment and adds to transaction costs and delays, would get addressed.
The Committee on Infrastructure had envisaged expenditure of approximately Rs 20,00,000 crore (Rs 20,000 billion) over the 11th Plan, 70 per cent of it from government funds and the remaining from private and foreign sources. Such a large fund infusion into the economy could help conserve growth, if expedited.
However, there is little clarity on which projects come under this plan and what the progress is. According to the Project Implementation Report which tracks central sector projects, 74 mega projects and 462 major projects together add up to 95 per cent of anticipated cost, estimated at Rs 4,15,000 crore (Rs 4,150 billion).
The delay in implementation of 321 projects due to various reasons has resulted in cost over-runs of over 15 per cent in the quarter Oct-Dec 2007. If speedy release of funds for these projects could be carried out, it would provide a major boost to the infrastructure sector and to the economy as a whole.
In order for large infrastructure project spending to become a key growth driver for the economy, there is need to enhance public investments, facilitate public private partnership, and speed up clearances to large private sector investments.
To properly channelise scarce resources into specific projects, a list of 20 projects with high multiplier spin-offs should be identified in each sector. These projects can then be put on the front-burner for fund infusions, fast-tracking and early completion.
In the short run, clearances which are held up due to various reasons should be examined quickly and modalities for unclogging the bottlenecks put in place. This may require a special project envoy to be appointed to expedite the matter in different departments.
A Centre of Excellence was mooted by CII to examine the modalities of public private partnership. PPP is a relatively new concept and as yet not fully smooth in its functioning.
The Committee on Infrastructure has also drafted model agreements for a few sectors. The proposed centre can be set up speedily so as to iron out existing issues, and address certain large projects in particular.
Given the current financial problems, existing lacunae in extension of formal financing options to rural areas hamper proper match of domestic savings to investments, and consequently restrict fund flow into infrastructure.
Financial inclusion measures, as well as further changes to deepen and strengthen the overall financial system as per suggestions made in various reports are a necessity. A major issue would be unlocking funds currently residing in pension and insurance sectors. Viability gap funding by government may also need to be re-examined to assure continued investments.
While FDI inflow has been robust in the financial year so far, it cannot be taken for granted in the current difficult situation. Confidence levels being low, investor comfort needs to be sustained to maintain the flow.
This could be established through a few judicious announcements on raising limits in certain sectors, such as multi-brand retail, insurance, etc. Overseas investors will be looking for safe havens to park their funds, and India so far has proved its resilience and long-term growth opportunity.
At the same time, it should be ensured that domestic companies do not find themselves at a disadvantage when it comes to tender specifications for infrastructure projects. Often Indian companies are left out of the bidding process as they cannot match the experience of overseas companies.
Infrastructure sectors each have their own particular challenges, which need to be tackled individually. For example, the lack of uniform tolling systems delays road transport and discourages investors in the NHDP.
In the port sector, lack of adequate hinterland connectivity deters investors. The power sector faces issues in generation, transmission and distribution, including tariff rationalization and captive power plant policy. Urban development is particularly urgent to alleviate the pressure on our cities.
Projects under the National Urban Renewal Mission can be expanded under PPP mode, and the process of empowering and strengthening urban local bodies should be speeded up.
Overall, most of the infrastructure sector requires strong and capable regulatory bodies that oversee with a light hand. The issue of land acquisition, compensation and rehabilitation has also been pending for long, and many investment proposals are awaiting greater clarity on the matter.
The present global crisis is a challenge for the Indian economy as it seeks to integrate into the world. On the other hand, this is also an opportunity for India to push through reforms that otherwise might have taken longer.
This is especially necessary in the infrastructure sector, where large fund infusions from both public and private sources could help preserve India's demand and its growth trajectory.
The author is Director General, CII