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Infrastructural concerns have been always there in case of India. The GoI designed a format of PPP to boost the sector. But due to several global and domestic factors, it got almost derailed by late 2013–14. Of late, the infrastructure projects were hit by variety of hurdles:
(i) Delays in project approval – causing high cost over-runs,
(ii) Delays in land acquisition,
(iii) Scarcity of fund due to longer gestation periods,
(iv) Drawbacks in the existing PPP format,
(v) A situation of policy paralysis form 2010-11 to 2013–14,
(vi) Slowdown in growth of the economy (due to global and domestic slackness), and
(vii) Twin Balance Sheet problem.
(i) The Twelfth Plan lays special emphasis on development of the infrastructure sector including:
(a) Energy, as the availability of quality infrastructure is important not only for sustaining high growth, but also ensuring that the growth is inclusive.
(b) The total investment in the infrastructure sector during the Plan, estimated at Rs. 56.3 lakh crore (approx. US$1trillion), will be nearly double the amount committed during the Eleventh Plan.
(c) This step up in investment will be feasible primarily because of enlarged private-sector participation that is envisaged.
(ii) Unbundling of infrastructure projects, public private partnerships (PPP), and more transparent regulatory mechanisms have induced private investors to increase their participation in infrastructure sectors:
(a) Their share in infrastructure investment increased from 22 per cent in the Tenth Plan to 38 per cent in the Eleventh Plan and was expected to be about 48 per cent during the Twelfth Plan.
(b) Yet, more than half of the resources required for infrastructure would need to come from the public sector, from the government, and the parastatals.
(c) This would require not only the creation of the fiscal space but also use of a rational pricing policy.
(d) Scaling up private-sector participation on a sustainable basis will require redefining the contours of their participation for the development of infrastructure sector in a transparent and objective manner with a comprehensive regulatory mechanism in place.
(e) From a macroeconomic perspective, a high level of investment in the infrastructure sector is essential for the overall revival of investment climate which may finally lead to sustainable growth in an economy.
(f) However, in the current macroeconomic environment, to achieve this
objective, there is need to address sector-specific issues over the medium-to-long-term horizon in India.
(iii) There is an overall shortage of power in the country both in terms of energy deficit and peak shortage:
(a) At present, overall energy deficit is about 8.6 per cent and peak shortage of power is about 9.0 per cent.
(b) The Eleventh Plan added 55,000 MW of generation capacity which was more than twice the capacity added in the Tenth Plan.
(c) The Twelfth Plan aims to add another 88, 000 MW.
(d) Delivery of this additional capacity would critically depend on resolving fuel availability problems, especially when about half the generated capacity is expected to come from the private sector.
(e) The private developers may not be able
to finance the projects if coal linkages are not resolved and there are delays in finalisation of fuel supply agreements (FSAs).
(f) While some decisions have been taken for restructuring Discoms’ finances, these may need to be monitored and implemented in spirit.
(iv) Although India has large coal reserves, demand for coal is substantially outpacing its domestic availability, with Coal India Ltd. not being able to meet its coal production targets in the Eleventh Plan:
(a) Domestic coal supplies are therefore not assured for coal-based power projects planned during the Twelfth Plan. Thus, it is essential to ensure that domestic production of coal increases from 540 million tonnes in 2011-12 to the target of 795 million tonnes at the end of the 12th Plan.
(b) This increase of 255 million tonnes assumes an increase of 64 million tonnes of captive capacity with the rest being met by Coal India Limited.
(c) However, even with this increase, there will be a need to import 185 million tonnes of coal in 2016–17, which may further add to the financing cost of power projects.
(d) More effort must be made for improving competition and efficiency in the coal sector, which may entail structural
reforms.
(e) Problems like delays in obtaining environmental clearances, land acquisitions, and rehabilitation need to be suitably addressed in fast- track mode to achieve the Twelfth Plan targets for coal production, while maintaining a balance between growth needs and environmental concerns.
(v) Progress of road projects has also suffered on account of similar factors:
(a) The creation of a High-Level Cabinet Committee on Investment to quicken the pace of decision making in critical infrastructure projects by the government is expected to resolve any issues involving inter- ministerial coordination.
(b) Of late, financing of road projects has also run into difficulty as leveraged companies implementing road projects are unable to raise more debt in the absence of fresh equity. In current market conditions, these firms are unable to raise new equity.
(c) Exit route needs to be eased so that promoters can sell equity positions after construction, passing on all benefits and responsibilities to entities that step in.
(d) Promoters can then use the equity thus released for new projects.
(e) Steps are also needed to up-scale projects in PPP mode for achieving the targets envisaged for the development of roads in the Twelfth Plan.
(vi) The process of extending transparent policies and mechanisms for allocation of scarce natural resources to private companies for commercial purposes has also been initiated:
(a) The Mines & Mineral (Development and Regulation) Bill 2011 aims at providing a simple and transparent mechanism for grant of mining lease or prospecting licence through competitive bidding in areas of known mineralisation and on first-in-time basis in areas where mineralisation is not known.
(b) However, in order to meet the objective of revenue maximisation in an
open, transparent and competitive manner, this should be preceded by detailed geological mapping of the mineral wealth of the country.
(c) Further, any policy prescription regarding the use of natural resources must ensure that the process of selection is fair, reasonable, non- discriminatory, transparent, and aimed at promoting healthy competition and equitable treatment.
(vii) Owing to a number of external and internal factors, viability of airline
operations in India has come under stress.
(a) A high operating cost environment owing to high and rising cost of aviation turbine fuel (ATF) coupled with rupee depreciation is making operations unviable for carriers in India.
(b) The Expert Report of Nathan Economic Consulting India Private Ltd. (Nathan India) which went into the question of pricing and the tax regime governing ATF concluded that ATF prices in India are significantly higher (at least 40 per cent) than in competing hubs in the region such as Singapore, Hong Kong and Dubai.
(c) Therefore, there is need to rationalise the tax regime particularly value added tax on ATF which is in the range of 20–30 per cent in most of the states.
(d) The Ministry of Civil Aviation is of the view that ATF should be included under the declared goods category under the relevant provision of the Central Sales Tax Act so that a uniform levy of 5 per cent is achieved.
(e) Equally important is the need for a transparent pricing regime for ATF in India. A high tax regime for aviation in general, and ATF in particular, will reduce the wider economic benefits available from aviation, resulting in a negative impact on economic growth and overall government revenue bases.
(viii) The Railways is another urgent priority for the Twelfth Plan:
(a) Capacity in railways has lagged far behind what is needed, especially given the requirement of shifting from road transport to rail in the interests of improving energy efficiency and reducing carbon footprints in development.
(b) The funding pattern of the Twelfth Plan clearly shows that the modernisation of Indian Railways cannot be achieved by simply relying on GBS (Gross Budgetary Support) as about 62 per cent of the resources would have to be generated through non-GBS sources and nearly
20 per cent through private-sector investment.
(c) There is a need to draw up clear strategies to generate resources by identifying segments where Indian Railways can adopt a low-cost policy by playing on volumes and taking advantage of economies of scale and segments where it can adopt a differentiation approach by providing high-quality services and command premium prices.
(ix) The Twelfth Plan document, a GDP growth rate of about 8 per cent requires a growth rate of about 6 per cent in total energy use from all sources:
(a) Unfortunately, the capacity of the economy to expand domestic energy supplies to meet this demand is severely limited.
(b) The country is not well-endowed with energy resources, except coal, and the existence of policy distortions makes management of demand and supply more difficult.
(c) Accordingly, 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, and clarity in terms of the NELP.
(d) At the same time, the long-term strategy should focus on issues like coal production, petroleum price distortion, natural gas pricing, and effective management of the urbanisation process.