Yogesh Kumar/Mint

Yogesh Kumar/Mint

Survey finds infrastructure sector funding a challenge

Survey finds infrastructure sector funding a challenge

New Delhi: Sourcing the trillions of rupees needed to fund the country’s ambitious infrastructure agenda is a challenge, the Economic Survey 2010-11 said, adding the government needs to tackle this with innovative ideas and policy interventions.

The survey cautioned that poorly designed policies could lead to bad decisions on using taxpayers’ money.

A case in point is the provision for viability gap funding (VGF) of up to 40% of a project’s cost. VGF refers to grants given by the government to make unprofitable projects viable for private companies.

This model leads to large profits at the start of a project, resulting in shoddy work later, said the survey, which was released on Friday.

It, instead, recommended a 10% up-front VGF payment for infrastructure projects and converting the balance into an annuity payable over 20 years.

Yogesh Kumar/Mint

“Some innovative ideas and new models of financing would be required. Channelling domestic and foreign financial savings of this scale into infrastructure requires a judicious mix of policy interventions which balances the growth and stability objectives," the survey said.

On ecological concerns becoming a stumbling block for development, the survey said, “There is urgent need to streamline land acquisition and environment clearance for infrastructure projects."

It suggested the creation of a national forest land bank, with clear paperwork and titles to expedite clearances.

As at October, of the 559 central sector projects costing 150 crore or more, 14 were ahead of schedule, 117 were on schedule, and 293 projects were delayed.

To combat the chronic shortage of skilled manpower, the survey suggested a construction-focused vocational training programme through a commercially viable public-private partnership.

“These measures are definitely required but we still need to see them happening in practice. Both environment and growth should be a consequence of, and lead to the other," said Monish Chatrath, executive director at consultancy firm Mazars India.

The survey also recommended a revision in electricity tariffs and a reduction in subsidies and cross-subsidies.

India “has some of the lowest and most uneconomic average electricity tariffs in the world... The current tariff levels are unsustainable, cannot elicit needed investments, drain resources, and are not targeted at the poor", the survey said.

Energy losses arising from supply to farmers have assumed alarming proportions. As agricultural power supply is unmetered, many utilities write off all losses from transmission and distribution as agricultural consumption.

The survey stressed on improving distribution and opening bulk supply for competition in an energy-short economy. Utilities in India face about 35% losses due to unmetered and unaccounted for sales—the highest in the world. Combined annual losses of all state electricity boards add up to about 1% of India’s gross domestic product.

Power generation decreased to 4.5% between April and December from 6.17% in the corresponding period in 2009, due to limited generation from gas-based projects, delays in commissioning new projects, and a shortage of coal.

Peak power shortage, however, was down to 10.2% between April and December from 12.6% a year earlier helped by a good monsoon that led to lower agricultural requirement of power. Power shortages have been identified as a key infrastructure bottleneck that threatens the country’s ability to achieve 8.6% economic growth in the ongoing fiscal year.

India has an installed power generation capacity of 170,000MW.

On coal, the economic survey reported that production increased only by 0.63% during April-December to 319.80 million tonnes (mt), due to delayed and unavailable forest clearances, poor law and order situation in Jharkhand and Orissa—key coal producing states—and excessive rainfall in western India.

Power projects are the worst hit by this marginal growth as the sector is the biggest consumer of the fuel, absorbing 78% of domestic production.

“We wouldn’t be able to achieve our targets due to a variety of reasons such as lack of physical capacity in areas such as engineering, manufacturing, among others. We also do not have the financial capacity," said Surya P. Sethi, former principal adviser, energy, Planning Commission. “For the first three years of the (11th) Plan, the spillover of delayed projects from the 10th Plan (2002-07) helped. In the fourth and the fifth year, this has slowed down. The survey confirms that we are falling behind."

Production by refineries increased 19.46% in April-December to 177.97 mt.

The survey also raised concerns about India’s port efficiency and productivity measured in terms of ship turnaround time. Average turnaround time at Union government-owned ports increased to 4.38 days in 2009-10 from 3.87 days in the previous fiscal year.

On telecom connectivity, the survey said that while India has a teledensity of around 65%, 62,443 villages are yet to be provided village public telephones under the universal service obligation fund, the agency responsible for promoting rural telephony.