The Indian Budget 1996-97 The Indian Economy Overview


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The Infrastructure Challenge

  1. An equally demanding challenge to India's economic development is how to provide adequate and reliable economic infrastructure services at reasonable cost and with sustainable financing and pricing policies. It must be emphasized that unless there are major improvements in this area, the momentum of growth in industry, agriculture and exports can be lost. It is no exaggeration to say that the prospects for India's social and economic development depend crucially on the performance of infrastructure sectors, such as power, roads, railways, ports, irrigation and telecommunications.

  2. Bringing about the necessary improvements will entail a paradigm shift from the old public monopoly approach to one in which private providers of infrastructure services are also actively encouraged. A significant start has already been made in encouraging private providers in power, telecommunications, civil aviation, ports and roads. However much remains to be done to develop and implement viable policy frameworks and institutional structures. Independent regulatory authorities have to be established to set appropriate rates, harmonize design standards and specifications and generally promote the public interest. Transparent and workable rules and procedures for private investment and operation have to be clearly set out in each infrastructure sector. Since government-owned entities will continue to be important providers of services in most infrastructure sectors, far-reaching reforms will have to be undertaken to increase the operational efficiency and accountability of these entities and ensure application of commercial principles in their operation and financial management, including tariff policies. In many cases, major institutional reforms will also be necessary.

  3. Cost-effective expansion of infrastructure sectors will require massive amounts of long-term finance. This, in turn, will require reforms of insurance and provident fund sectors and suitable policies for rapid and healthy development of markets for long-term bonds. There is also enormous scope for attracting foreign direct investment in infrastructure sectors.
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