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February 23, 2001
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Core sector investments key to India's future growth


India's economy, hit by a slowdown, could see a further tapering in growth in the years ahead unless it draws private investment in vital infrastructure sectors, the government said on Friday.

"Greater private sector investment is essential not only due to a constraint on government resources but also to improve the quality of services and the delivery system," the government said in its economic survey for 2000-01.

Finance Minister Yashwant Sinha, who presents the Union Budget for 2001-02 (April-March) next week, is under pressure to accelerate reforms in several sectors in a bid to revive growth.

The gross domestic product (GDP) growth is likely to fall to six per cent in the current year to March from 6.4 per cent last year and 6.9 per cent in 1998-99.

The index of industrial production rose by 5.7 per cent in April-December 2000, down from 6.4 per cent a year earlier. In December alone, the index rose 3.4 per cent, down from 8.1 in 1999, the worst in over two years.

The survey said the government needed to push ahead reforms in the crucial power, telecom, roads and ports sectors to attract private investments.

"Much more needs to be done for sectoral reforms, rationalisation of user charges, and strengthening of institutional, legal and regulatory framework for ensuring fair competition among private and public operators," it said.

The government, faced with a severe fiscal resource crunch, has few funds of its own to invest in infrastructure development.


In the early 1990s, it embarked on a drive to woo private investments to set right its creaking infrastructure, but actual flows are still a trickle.

The survey said the pace of private investment flows into infrastructure depended on the availability of long-term debt finance at reasonable rates.

"Appropriate reforms in insurance, pension and provident funds will help channelise investments for infrastructure projects," it said.

India has opened up its insurance sector to private and foreign companies, but is yet to reform the pension and provident fund sectors.

The survey also said that independent regulators in several infrastructure sectors must have greater operational and financial autonomy.

"Concerned ministries of the regulatory bodies have adopted different approaches towards the regulatory process. There is need to look at the existing regulatory legislation and to bring a comprehensive and uniform approach to regulation," it said.

For the power sector, it recommended urgent reforms in state electricity boards, rationalisation of the current system of tariff-setting and policies to boost captive power generation.

The survey said an inadequate policy and regulatory framework had deterred large investments in roads and highways.

"Highway development projects need to be clubbed along with related utilities to make the projects more attractive," it said.

"Formulation of investment packages, which offer roadside amenity development along with investments in roads and bridges to the investors, could attract larger scale of investments."

The economic survey also suggested the need to review railway tariffs to reduce cross-subsidisation.

The Indian Railways, which operates the world's largest rail network and is the largest employer in the country, subsidises passenger fares by charging higher freight rates.

"Rail Tariff Authority on the lines of the Telecommunication Regulatory Authority needs to be set up with the mandate to fix tariffs on a rational basis," the survey said.

Economic Survey 2000-2001
Budget 2001

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