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Monday, December 06, 2004Part 1 of this article, we noticed owing to poor infrastructure that India is highy affected and is significantly behind other nations such as China. This part, covers the issues that need to be adrressed by India:
Arun Shourie, a minister in the union cabinet till last elections, told a private gathering in Singapore this year that the Indian Bureaucracy is equipped to handle events like the Kumbhmela, where several million people congregate at the saem time. While hte bureacracy seems to be gearing up to change, it could be a case of far little, too few and too late.
New Implementation Styles would Have to evolve for mega projects like Golden quadrilateral project. Existing inftituitional setups may not be adequate in creating global class infrastructure. The current plan is to spend an additional US$5 billion per annum for the next three to four years. Although this is still a small amount, it would provide some impetus for kick-starting a sustainable recovery in the overall investment cycle.
Alternative Funding Options that the government is evaluating the various alternatives for funding infrastructure investments include:
(a) Direct monetization
(b) Using foreign exchange reserves
(c) Raising long-term foreign currency bonds
(d) Raising long-term local bonds
Aggressive Privatization May Be the Best Solution
The government has been too narrowly focused not to be aggressive in the area of privatization. Large-scale privatization can be managed if the government chooses the right marketing policies. The privatization or divestment program would need to be accompanied by a clear split of 50% of receipts from the sale for investment in rural infrastructure facilities and the balance for spending on urban infrastructure.The government could easily start additional spending of US$10-15 billion per annum from privatization receipts, which would take total spending to about US$45 to 50 billion per annum in the near term.
Breaking the Vicious Circle of Low Growth and Investment Is Critical:
India is currently stuck in a relatively low growth and investment cycle. The biggest hurdle to a sustained capex cycle is the lack of support from the physical infrastructure. A rise of at least US$10-15 billion per annum in infrastructure spending through a combination of privatization receipts and an increase in government debt is necessary. However, current indications are that the government may restrict the increase in spending to funding of US$5 billion (about 1% GDP) through increasing the fiscal deficit. Actual spending could start from the second half of 2005.
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