The Economic Survey asked the government on Thursday to incentivise fund mobilisation and bring comprehensive but simple policy and regulations for the infrastructure sector that requires Rs 20,00,000 crore (Rs 20,000 billion).
"Despite efforts to accelerate the pace of infrastructure development, the demand for infrastructure services have grown even faster than the supply so that the constraints may have become more binding. Infrastructure growth during April-December slowed down to 5.7 per cent against 8.9 per cent a year ago.
"The development of adequate infrastructure is a critical pre-requisite for sustaining the growth momentum and to ensure inclusiveness of the growth process," according to the Survey tabled by Finance Minister P Chidambaram in Parliament on Thursday.
This would require mobilisation of unprecedented amounts of capital in tandem with 'policy and regulations that are comprehensive but simple and clear and credible.'
"The long-term debt market should be developed to support infrastructure projects during the 11th Five Year Plan," the Survey said and pointed out that average nine per cent growth during the 11th Plan could be achieved only if infrastructure deficit was overcome.
The Survey expressed concern that growth in output of the infrastructure sector and its capacity, particularly power, has been relatively modest as compared to the robust performance by services and manufacturing.
"An early head start is crucial for translating investment targets into investment intentions and investment into ground realities," the Survey said.
Further expansion in all sectors of the economy will increasingly depend on availability of physical infrastructure and related services. It said the Centre would have to pump in more than 37 per cent of the $500 billion funding requirement, while the private sector would have to pool in over 30 per cent.
The Survey said the committee headed by Deepak Parekh in its report had pointed out that within the FRBM laws there is a limited scope for the Centre and states to increase budgetary support and guarantees in financing infrastructure projects.
Moreover, there is lack of availability of risk capital to support debt, coupled with inadequate flow of equity capital into the sector. The NBFCs are also constrained due to lack of access to low-cost financing options and exposure norms, it said.
The measures being taken by government to address these constraints include the Indian Infrastructure Finance Initiative to deploy about Rs 20,000 crore (Rs 200 billion) in capital for infrastructure projects, and IIFCL setting up a SPV to utilise part of forex reserves on the sector.
For infrastructure development, RBI has granted in-principle approval for investing Rs 20,000 crore in securities fully guaranteed by the government, it said.
In the airport sector, the Airports Authority of India is expected to complete terminal buildings and associated roadside works of 24 airports by March next year, while the work on another 11 airports would be completed by March 2010, the Survey said. The development of separate city-side non-metro airports would be taken up through Public
Private Partnership, it added.
The Survey said the National Aviation Company of India Limited -- the entity formed after merger of Air India and Indian airlines -- is in the process of acquiring 111 aircraft to augment its fleet.
In the roads and bridges sector, the 11th Plan envisages a total investment of Rs 3,14,152 crore (Rs 3,141.52 billion), of which the Centre and private sector are expected to contribute about 34 per cent each, and the remaining would come from the states.
During April-December last year, the infrastructure sector saw power generation growth decelerating from 7.5 per cent to 6.6 per cent, while the transport sector had a mixed picture with growth in railway traffic slowing down but port and air cargo traffic increasing, the Survey said.
The production of universal intermediates like steel, cement and petroleum showed a distinctly weaker performance during the period as compared to the corresponding period in the previous year.
Of the total resources required for the infrastructure sector during the 11th Plan period, a substantial part would have to come through domestic bank credit, non-bank finance, pension and insurance funds besides the External Commercial Borrowings route, it said.
The Committee on Infrastructure had identified various problems in the sector including inadequate shelf of bankable projects, insufficient long-term finance and policy as well as regulatory gaps.
To overcome these shortages, the government, besides allowing Viability Gap Funding in infrastructure projects, has allowed multilateral funding agencies like the Asian Development Bank to raise rupee bonds and carry out currency swaps to provide long-term debt to PPP projects, the Survey stated.
"Though physical infrastructure may appear to be a constraint on growth at present, at the same time if investment is forthcoming into this sector, it cannot only help sustain growth in the production sectors but may very well be the driver of growth and employment through its multiplier effects," it added.
