Infrastructure demand-supply gap will hit growth: survey

The demand for infrastructural facilities and services continue to outpace supply and the quality of existing supply is poor, according to the Economic Survey tabled in Parliament on Tuesday.

''The visible signs of shortfalls in capacity and inefficiencies include increasingly congested roads, power failures, long waiting lists for installation of telephones, and shortages of drinking water,'' the survey said.

It said the widening gap between demand and supply of infrastructure also raised questions concerning the sustainability of economic growth in future.

The survey said that in order to sustain a GDP growth rate of seven per cent, it was imperative to have an acceleration in the rate of investment in infrastructure. ''However, the massive investment needs in infrastructure cannot be met within the financial resources of the government without crowding out other priority social and economic development programmes.''

They survey said that in order to satisfy the upwardly spiralling demand in the infrastructure sector, it was necessary to evolve an organisational format where development of the sector was less dependent on government funds and where investment could be financed from the capital markets and internal resources on self-sustaining basis.

The efficacy of the private sector participation in infrastructure development would be contingent upon the capability to commercialise these projects whereby recovery of investments would be through a system of user charges. ''In fact, the potential for commercialisation and competition in infrastructure is more widespread than is commonly perceived. Activities such as power generation and distribution, long-distance telecommunications, or solid waste collection are adaptable to market provision once they are unbundled from related activities.''

The Economic Survey said that for commercialisation of infrastructure projects, there had to be an appropriate allocation of risks. There were development risks, construction risks and operating risks.

The survey said there were also interest rate and exchange rate risks. Risk unbundling and assignment was, therefore, most critical.

It said that sovereign guarantees, often sought by private investors, needed to be given with the highest degree of caution. ''In fact, short-term guarantees can very easily be used as a substitute for longer-term sectoral reform.''

The survey said that in view of high upfront costs and long payback periods, infrastructure investments required matching long-term finance. ''To mobilise long-term finance, domestic capital markets will have to be reformed so as to create a vibrant bond market.''

It said the process of deregulation and privatisation of infrastructure services needed to be supplemented by the establishment of competition among public and private operators and protecting consumer interests, public safety, internal and external security, needs of vulnerable and weaker sections, and environmental sustainability.

UNI