Success will be facilitated by the development of a vibrant bond market, pension and insurance reforms
NEW DELHI: With infrastructure now showing signs of progress and providing impetus to economic growth, the Economic Survey has suggested that insurance and pension funds can be used to meet the massive investment need of $320 billion in infrastructure during the XI Plan.
An indicator of the economy's progress, the document, tabled in Parliament on Tuesday, says: "Outlook in infrastructure will depend on how investment in infrastructure is facilitated".
It injects a note of optimism when it observes that infrastructure for years perceived as a constraint on growth is showing signs of progress in areas such as power, roads, ports and airports.
In this contest, it points to the fact that the overall index of six core industries, having a direct bearing on infrastructure and accounting for 27 per cent of weight in the Index of Industrial Production (IIP), registered a growth of 8.3 per cent during April-December, 2006 as against the 5.5 per cent registered a year ago. Referring to the projection of investment of Rs. 14,50,000 crore ($320 billion) required in the core sector during the XI Plan, it said investment in infrastructure required long-term funds with long payback periods, which would be possible if insurance and pension funds were utilised.
The pre-budget Survey goes on to add, "Thus, success on the infrastructure front will be facilitated by the development of a vibrant bond market, and pension and insurance reforms."
"A single, unified exchange-traded market for corporate bonds would help create a mature debt market for financing infrastructure," it says further, recalling that the Committee on Infrastructure, headed by the Prime Minister, has projected Rs. 2,20,000 crore fund requirement for modernising and upgrading highways, Rs. 40,000 crore for civil aviation, Rs. 50,000 crore for ports and Rs. 3,00,000 crore for the railways by 2012.
While acknowledging that short-term problems are unlikely to disappear rapidly without resolute action, the Survey said that provision of quality and efficient infrastructure services is essential to realise the full potential of the growth impulses surging through the economy.
On the power front, it says that enough generation capacity will get added to wipe out the shortages only over the medium term. "Improving the short-term power outlook will critically depend on how fast success in slashing transmission and distribution losses (from near 40 per cent to 15 per cent) is achieved," it underlines.
However, the survey cautions that the progress on the road and highways front will depend on how rapidly constraints such as delays in land acquisition, removal of structures and shifting of utilities, law and order problem in some states, and poor performance of some contractors are removed.
In regard to urban infrastructure, the Survey called for comprehensive planning and effective monitoring. "Outlook on urban infrastructure will depend critically on how fast the finances and functional efficiency of urban local bodies are improved."
The survey notes that there exist strong, well-recognised linkages between infrastructure on the one hand, and economic growth and poverty alleviation on the other.
"Not only will infrastructure give a fillip to economic growth but a robust economic growth in turn by enhancing willingness to pay appropriate user charges, will promote investment in infrastructure", it observed adding that the outlook for infrastructural improvement looks promising.
It further says that given the experience gained in PPP (public private partnership) and concession agreements, infrastructure investments should gain momentum over comings months and years.
The pre-budget document also says that the "drumbeats of infrastructure are gradually, getting louder and in the next few years'' their rumble will be felt all over the country.