indian economy
By jnaneshwar
@jnaneshwar (1)
India
November 16, 2006 12:31am CST
Last week Cherian Thomas and Anand Krishnamoorthy had an article on Bloomberg where they suggested that lack of clear investment rules may impede the inflow of investment funds which could make possible the truly daunting programme of infrastructural works which are needed in India between now and 2010.
Indian Prime Minister Manmohan Singh may struggle to convince investors to help fund $320 billion of infrastructure spending by 2010 because he can’t persuade his government to draw up investment rules.
Singh, 74, doubled his budget for roads, railways and ports in New Delhi on Oct. 7, saying industry regulators are needed to spur investment and balance higher returns with low user charges. Railway Minister Lalu Prasad, who needs $66 billion to upgrade the world’s second-biggest rail network, rejected the plan.
Infrastructures are hugely strained:
Infrastructure utilities are strained. Highways, which move about 70 percent of the goods transported in India, account for only about 2 percent of the country’s 3.32 million kilometers (2.1 million miles) of roads. It takes an average 85 hours to unload and reload a ship at India’s major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.
Regulators are needed, but there is no consensus on what kind of regulators India needs, or what objectives they should be pursuing:
Railway Minister Prasad opposed Prime Minister Singh’s idea of establishing a regulator for Asia’s oldest network, which moves 6.6 billion people a year. He contends only the government will be able to balance fares and returns on investments.
“We can’t have regulators as we have social obligations which only the government can deliver,'’ said Prasad, whose ministry employs 1.5 million people and has a separate budget. Indian Railways subsidizes passenger fares by charging freight customers more, losing half its share of the goods transport market to road operators in Asia’s fourth-biggest economy.
So resources are constrained, and competing objectives complicate the decision making process. In addition, as has been argued in the last post, fiscal excesses in India in recent years mean that the role of public funding in the infrastructure programme will inevitably be relatively limited:
Singh wants to spur investment by setting up public-private partnerships to build air, land and sea facilities. Attracting private capital can be successful if there is a policy framework regarding returns, tariffs and service quality, he said.
“Public resources available for investment in infrastructure will be limited,'’ Singh said. “Our experience shows that public-private partnership is best suited for the infrastructure sector. The telecoms sector is a case in point.‘’
Now given my continuing and profound ignorance about the details of how such matters work in India, I thought it might be useful to avail myself yet one more time of the more detailed knowledge of commenters Aninda, Nandan and Venkat, to find out just how they see the situation. You can read their main input in the comments below, here, for now, are some brief extracts:
No responses