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While India’s overall energy deficit and peak electricity shortage narrowed to 8.7% and 9%, respectively, the country is reeling under a chronic fuel shortage which, in turn, has affected power generation and funding to the energy sector. Photo: Getty Images (Getty Images)
While India’s overall energy deficit and peak electricity shortage narrowed to 8.7% and 9%, respectively, the country is reeling under a chronic fuel shortage which, in turn, has affected power generation and funding to the energy sector. Photo: Getty Images
(Getty Images)

Reinforcing infrastructure key to achieving growth target

Economic Survey stresses need to expedite oil exploration, ensure fuel supply to power producers, remove hurdles in way of large projects

New Delhi: Concerned by the slow pace of infrastructure development in India, the Economic Survey has stressed the need to expedite oil exploration, ensure fuel supply to power producers and remove hurdles in the way of large projects.

“The short-run action needed to remove impediments to implementation of projects in infrastructure, especially in the area of energy, includes ensuring fuel supply to power stations, financial restructuring of discoms (distribution companies), and clarity in terms of the NELP (new exploration licensing policy)," said the Economic Survey presented in Parliament on Wednesday.

The concerns raised by the survey, prepared by advisers to the finance minister, come in the backdrop of rapidly diminishing interest in the Indian hydrocarbon sector. “Non-clearance" of blocks awarded under the oil and gas exploration policy is leading to an exodus of foreign companies.

While India’s overall energy deficit and peak electricity shortage narrowed to 8.7% and 9%, respectively, the country is reeling under a chronic fuel shortage which, in turn, has affected power generation and funding to the energy sector.

Power generation between April and December grew 4.55% to 683.753 billion kilowatt-hours (kWh), against about 9.33% in the year ago. Power projects are the worst hit by falling coal output as the sector is the biggest consumer of the fuel, absorbing 78% of domestic production.

The survey pointed out that the problems of the sector have, in turn, affected the capital goods sector. With power project developers struggling with issues such as fuel shortage, delays in signing fuel-supply agreements, lack of long-term power purchase agreements and a credit crunch, orders for power generation equipment manufacturers have slowed. India will need to import 185 million tonnes of coal in 2016-17, which may further add to the financing cost of power projects, the survey said.

With the government under fire for irregularities in the allotment of captive coal blocks, the survey spelt out the need for evolving a participating and regulatory mechanism to attract the private sector “for the development of infrastructure sector in a transparent and objective manner".

Reinforcing infrastructure is key to achieving the government’s target of 8% annual growth. Energy supply has to grow 6% a year to achieve that level of growth in gross domestic product, the survey said.

“At the same time, the long-term strategy should focus on issues such as coal output, petroleum price distortion, natural gas pricing, and effective management of the urbanization process," the survey said.

Pointing out the distortion in targeting of domestic cooking gas subsidies, the report said “the reach of subsidies on LPG (liquefied natural gas) is highly unequal amongst the poor and rich in rural and urban areas. While there is a significant inequality in the proportion of subsidies received by the poorest and richest households in rural areas, the distribution is more equitable across urban households. However, in both cases, the proportion of subsidies that go to the poor is low."

The government has projected an investment requirement of $1 trillion for ports, roads and power plants in the 12th Five-Year Plan that starts on 1 April. Bank credit growth to infrastructure slowed to 13.52% in the first quarter of 2012-13 from 35.61% a year ago. This comes at a time when the banks are reaching their exposure limit for infrastructure funding. Overseas investment inflows in sectors such as power, petroleum and natural gas and telecom declined 68%, 89% and 96%, respectively.

The survey points to the need for stable and consistent policies and rapid investment in infrastructure, said Susmita Shekhar, secretary general, PHD Chamber of Commerce and Industry lobby. Delays in project execution have become a stumbling block in developing the country’s deficient infrastructure. Pointing out the deterioration in project implementation, the survey said there had been an increase in the number of stalled projects and failure of projects to start.

In September, of the 566 central sector projects costing 150 crore or more, only five were ahead of schedule, 226 were on schedule, and 258 had missed even their revised commissioning dates. While the remaining projects didn’t have a fixed commissioning date, the delays resulted in a cost increase by 16.8%.

Raghuram Rajan, chief economic adviser in the finance ministry, expressed hope that once large investments start coming in, it will increase orders for small companies.

In an attempt to ease the anxieties over the road sector, the survey said exit routes for promoters need to be eased to allow them to sell equity to raise money for new projects.

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