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Roads, Ports and Power: Jaitley’s Three-Pronged Rural Infra Push

The big infrastructure push. Credit: Shome Basu

The big infrastructure push. Credit: Shome Basu

When the finance minister rose to present his second full year budget, there was a large speculation in financial circles that it will be a ‘make or break budget’. A number of challenges had to be addressed: stressed assets of banks and corporates, stimulating demand from the rural sector, ensuring faster growth and increased investments in infrastructure, maintaining fiscal discipline and providing for the seventh pay commission.  In some of these areas the finance minister has moved forward. The budget speech tried to address a very large variety of issues including governance. The focus hence was not clear.  Rural infrastructure ,however, has emerged as a dominant theme.

The infra sector is the engine of growth in all economies. The investments in the sector in the twelfth plan were estimated at one trillion dollars. Most of it was to come from the private sector. The current budget gives no indication how this will happens. The railway budget had earlier projected an investment of about Rs. 1.21 lakh crores. Given the shortfall in internal resource generation last year and slow trade expansion, this seems unlikely. Unfortunately the railways have been able to attract very little private sector investment. Nothing in the last budget of the railway minister indicates that things are any different.

One of the better performing sectors in infrastructure is the road sector, though it continues to have problems. When the NHAI was conceived it was hoped that private investment in road sector would help the rapid expansion of road networks. The PPP model was conceived in that context. While the national highways and state roads are a focus area of FM in the budget, it is primarily from public investments. He has mentioned an allocation of Rs 55,000 crores to NHAI and another Rs 15,000 crores of resource from bonds to be floated by them. FM has mentioned a positive development in terms of resolution of problems of most of the old PPP contracts. It is not clear whether work has started on these roads. That will be the crucial test.The speech also, mentions a renegotiating regime for PPP.  But there is no assessment of when this mode will again become a dominant financing method. The report of the Kelkar Committee on PPP is perhaps yet to be processed. While the initiatives on dispute resolution and other changes in PPP policy are clearly required, it has taken nearly two years and the framework is still not in public domain as a policy.

Power is a key area in which major infra investments take place. The finance minister is silent about this sector in his speech except referring to electrification of villages. There is substantial power capacity both of gas and coal based plants which is stranded due to lack of demand. With increase in coal cess to Rs. 400 per tonne from Rs. 200, the cost of power will go up further and impact demand adversely.  The government’s hope that by introducing UDAY, a scheme for restructuring debts of discoms, the sector will become financially viable, needs a fresh look. Similarly the pace of construction of nuclear plants and the likely high power costs need a serious consideration. Many of the stressed assets are due to investments in power plants which are either not working or doing so at low PLF. How these issues will be sorted out is not clear.

In the area of ports, the FM has made a detailed mention of increasing capacities. Similarly for airports he has talked of developing nearly 160 airports with the help of state governments. With rapidly expanding middle class and low cost airlines, air transport is seeing sharp growth. There is however no strategy or indication of a roadmap or incentives for private investors. This appears more of an intent rather than a plan. These sectors are very crucial for several reasons including economic and environment. An overall logistic network needs to be promoted. The speech does not indicate whether the government is working on such a policy. What is being done to promote minor ports or coastal shipping has not been spelt out. In Tier-II towns, viability gap funding may be needed to develop airports. There is no thinking about it reflected in the speech.

Rural infrastructure has got a good focus and larger resources in the budget. This is clearly a very welcome move. In rural areas, roads and irrigation have received strong support in the budget. The budget provides Rs. 0 crores for rural roads and about Rs. 18, 000 crores for irrigation. In addition nearly Rs. 2.25 lakh crores given to panchayats, under XIV Finance commission grants, will also be spent largely on rural infrastructure. MGNREGA has allocation of about Rs, 38,500 crores part of which too will be spent on creating rural infrastructure. The total resources available will be about Rs. 3 lakh crores. This should help improve wages in rural areas. The recent Survey indicating a decline in rural wages has been worrying, especially considering that during 2004-2012  rural wages increased rapidly in real terms. To some extent it should help rural distress.

A rather unusual reference in the budget are the measures on improving governance. What is interesting is that Aadhar, which was initially opposed as a UPA initiative, is likely to get a legal backing. Also measures for directly transferring subsidy (DBT) and rationalization of staff in central ministries are contemplated. In PDS about 60% of the shops are to be brought under automation. Clearly, all these are fine initiatives. But the detailed inclusion in the budget speech breaks new ground.

The budget talks of more than Rs. 2 lakh crores on infrastructure. I would be sceptical of this in view of past railway performance. The policies on infrastructure in power, port and airport sector need greater clarity. Economic growth may not fructify unless infrastructure performs. But increased public investments in rural areas and measures on governance, if implemented, can provide better quality of life to large population.

B.K. Chaturvedi is a former cabinet secretary and member of the Planning Commission