New Delhi: A report on the state of rural infrastructure released on 21 February 2007 has called for changes to the regulatory framework to make it viable for private sector to invest in rural projects.
The India Infrastructure Report 2007, co-sponsored by the Union rural development ministry, suggested lesser Central role in funding rural infrastructure projects.
“There are sensible business models in a number of areas like rural telephony, where companies can make money,” said Partha Mukhopadhyay, senior research fellow at the Centre for Policy Research, a New Delhi-based think tank.
“And then there are some areas where the government can help make projects viable by providing some funds. It is proven that commercialization improves access to infrastructure. So it is good for the private sector to get involved.”
Most rural infrastructure projects are entirely funded by the government through a variety of state-owned financing corporations such as the National Bank for Agriculture and Rural Development (Nabard), or by grants and loans from foreign agencies such as the Asian Development Bank.
“The private sector hasn’t been involved as project operators in rural areas because there isn’t a propensity to pay user fees for services currently,” said Harsh Shrivastava, vice-president (marketing) of infrastructure services company Feedback Ventures.
While it is too early to specify models for private investment in rural infrastructure, the report stresses the need to evolve business models for private investment in rural infrastructure. It also proposes the use of subsidies as incentives to induce the private sector to enter areas of higher risk. The government must also show a track record of maintaining cost recovering tariffs.
Citing a perceived uncertainty of demand for infrastructure projects in rural areas, the report said community involvement, along with government and private sector funds, could be the way to go to develop rural infrastructure.
One reason for the reluctance of private financing of rural projects has been the lack of policy regulations that help make projects viable for private investors.
The report suggests that instead of government being used as the main funding source, they should be used as ‘equity’ or as ‘viability gap’.
The report was co-sponsored by the Infrastructure Development Finance Company Ltd, the United Nations and the Swiss Agency for Development and Cooperation (SDC).