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Good infrastructure? Enforce user charges
July 07, 2004 12:51 IST
Last Updated: July 07, 2004 12:54 IST
The pre-Budget Economic Survey on Wednesday asked the government to enforce user charges and evolve a regulatory framework that fosters competition for attracting investment in infrastructure creation for a stronger economic growth.
"As is well known, enormous financial investments are required to bring India's infrastructure up to world standards. For these investments to come about, a sound policy framework is required, which emphasises sound enforcement of user charges, transparency and high quality regulation," the Survey for 2003-04, tabled in Parliament said.
Infrastructure investment, it said, can potentially have a strong impact on GDP growth, both through improved production of infrastructure services and through its impact on demand side of the economy.
Given the fiscal contraints of government, private sector should be roped in for creation of infrastructure like roads, ports, airports, urban utilities and power generation.
"Once sound policies fall into place, flow of investment will improve," it said.
Lack of adequate infrastructure has not only been constraining the growth performance of the economy, it has also induced significant costs in terms of welfare loss.
"It is widely recognized that a simple reliance on competitive markets is unlikely to produce efficient outcomes in infrastructure, a sector with pronounced 'public goods' characteristics of 'non-rivalness' and non-excludiability," the Survey said.
The Survey said the government policy on spectrum allocation is going to be a major factor which will shape the future of the telecom industry.
"The electromagnetic spectrum which is a scarce natural resource, essential for mobile communication, needs to be allocated in ways that maximise its utilisation and economic value."
The pre-Budget document was critical of user charges in the postal system covering only 78.3 per cent of costs, and the presence of a significant subsidy element.
In road sector, it said "the major questions that need to be addressed are about a shift in focus from inaugurating roads to comprehensive corridor management, which can maximize the velocity and throughput of highways."
Calling for fresh set of institutional innovations and organisational structures, the Survey prescribed high efficiency in tolling, maintenance, enforcement against encroachment and customer facilities on the road.
The central focus of policy in the ports, it said, must remain maximisation of intra-port and inter-port competition.
"There is a need to continually benchmark Indian ports against the best ports worldwide, such as Colombo, Singapore or Hong Kong, and continue to engage in policy efforts so as to attain prices per container of port services which are the lowest in the world."
The strategy for urban infrastructure reform should be to empower local governments to take economic and service delivery decisions.
"The existing schemes need to be consolidated and rationalised into a system of capital grants to local governments, to support institutional reform and poverty targeting.
The pre-Budget document said government has significantly shifted away from direct production of public goods to also focusing on regulatory and policy framework and private-public partnership to generate adequate provision of public goods.
"Policy makers have worked on problems of infrastructure policy for over a decade. There has been substantial progress in some areas. The broad outlines now appear to be falling into place. The key principles seem to involve well enforced user charges, exploiting new technologies, private sector production, and a regulatory framework that fosters competition," the Survey said.
Gross capital formation in infrastructure investment at current prices increased from Rs 45,940 crore (Rs billion) (Rs 459.40 billion) in 1993-94 to Rs 90,890 crore (Rs billion) (Rs 908.90 billion) in 2002-03 but as percentage of GDP it declined from 5.4 per cent in 1993-94 to 3.7 per cent in 2002-03.
The Survey said in 2003-04, the infrastructure sector experienced mixed outcomes. Growth rate in some key sectors showed acceleration from the previous year. Strong growth rates had been observed for electricity, railways, ports and new telephone connections.
Hydel generation showed a sharp turnaround, reflecting the good monsoon, from a 13.8 per cent decline in 2002-03 to a 15.6 per cent increase in 2003-04.
At the same time, thermal and nuclear generation growth slowed, from 6.5 per cent to 3 per cent.
Goods traffic carried by the railways showed acceleration from 5.3 per cent in 2002-03 to 7.5 per cent in 2003-04. While cargo handled at major ports also grew by 9.9 per cent, domestic passenger air traffic grew sharply by 13.1 per cent in 2003-04.