New Delhi: The Union government is trying to enlist the private sector to build roads and homes in the countryside, where two-thirds of Indians live, in an attempt to push rural development ahead of general elections due next year. Incentives, if any, for companies to join the drive are still to be worked out.
While the government wants builders to take part in upgrading existing roads and constructing new ones, it is asking private sector banks to join those in the public sector to extend home loans to rural families just above the poverty line at below-market interest rates.
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The Planning Commission, India’s apex policy setting agency, has suggested public-private partnerships, or PPPs, to build and upgrade roads in villages across the country that are plagued by delays and cost overruns.
Under the Pradhan Mantri Gram Sadak Yojana, which translates from Hindi as Prime Minister’s village roads programme, only 35% of 59,536 habitations (covering hamlets to large villages) that were to be linked by roads by April 2009, had been connected by March 2008. And only 44% of the targeted 194,000km of rural roads had been upgraded.
State governments are executing this project under the supervision of the Union rural development ministry. Private companies are given contracts on the basis of tenders and they have to submit detailed project reports, or DPRs, to the government.
“The reliance on DPRs is time-consuming and it is causing cost overruns besides leading to disputes among contracting parties. So the Planning Commission has suggested award of projects under the build-operate-transfer or annuity basis for 11 years,” said a senior Planning Commission official who did not want to be named.
The commission also suggested the selection of concessionaires, or companies with which the government enters into time-bound contracts, through a so-called request for qualification process, with construction costs set through bidding. The Centre may reimburse part of the construction cost.
“If the government decides to go in for a PPP model, the ministry will welcome it. But the question is will private companies be willing to work on rural roads?” asked a senior official at the rural development ministry.
The proposal to draft private sector banks into the home loan programme targeted at villages is part of a National Rural Habitat Policy that will be unveiled shortly, aimed at increasing the number of people in the countryside who can avail of housing finance, said another ministry official who also asked not to be identified.
Only below poverty line, or BPL, families, which earn less than Rs25,000 per year, are now given assistance for constructing homes through Indira Awaas Yojana, or housing programme, which is jointly funded by the Union government (75%) and the states (25%).
Under the programme, introduced in 1985, each BPL family is given assistance of Rs35,000 for building homes. A provision to extend them additional capital at cheap interest rates was also recently introduced as part of the programme.
As many as 14 million rural households in India are in need of housing, said the rural development ministry official. “If the government can assist more people in building homes, then it will help energize the construction sector in India which, in turn, will help more people build homes,” he added.
The Centre has invited banks to participate in a two-day workshop starting 24 July to discuss the proposal.
Bank interest-rate margins are already under pressure as their funding costs rise and loan growth slows following recent increases in the central bank’s key short-term lending rate designed to douse inflation that’s at a 13-year high.
“If the government is willing to give subsidy, then it is ok with us,” Shubhada Rao, chief economist at the private sector Yes Bank, said. “We would also like to help the people. But at present the cost of funds doesn’t allow us to extend loans at lower interest rates.”
Udit Misra contributed to this story.