SPEECHES / STATEMENTS 

PM Inaugurates Conference on Building Infrastrcuture: Challenges and Opportunities

March 23, 2010, New Delhi

“It gives me great pleasure to inaugurate this conference on the challenges and opportunities of building infrastructure. I addressed the first such conference at this very venue three and a half years ago in the year 2006. A great deal has happened since then, much of it very positive. I am very happy to be here once again to speak on this issue, which is extremely relevant to our economic future.

India’s recent economic performance has been commendable on many counts. The economy grew at an average annual rate of about 9% before the global economic meltdown. It slowed down in 2008 because of the global crisis which continued into 2009, when it was compounded by a severe drought the country faced. Despite these adverse circumstances, our economy grew by 6.7% in fiscal year 2008-09, and it has accelerated to 7.2% in the fiscal year which is about to end in a few days time. These rates are well above those seen in the developed worlds, and reflect the underlying strengths of our economy. We expect to achieve 8.5% growth rate in the year 2010-11 and I hope we can achieve a growth rate of 9% in the year 2011-12.

I believe that we need to do even better. For eliminating poverty and providing productive employment for our young population in the near future, we must aim at accelerating the pace of economic growth to about 10% per annum. This is the growth target which we should work towards for the Twelfth Five Year Plan.

A growth rate of 10% looks ambitious but it is not impossible. It has been achieved by other emerging economies in Asia. However, it is not something that will happen automatically. We would need continual improvements in our policy regime and in our implementation procedures. Later today, I will be reviewing these issues in a meeting of the full Planning Commission to discuss the Mid Term Appraisal of the Eleventh Five Year Plan. For now, I will focus only on infrastructure development and what it requires in the years that lie ahead.

Let me begin by clarifying that when I say infrastructure, I do not mean only infrastructure for the modern part of our economy. For truly inclusive growth, we need to meet the infrastructure needs of the whole country. Infrastructure must therefore be defined broadly to include highways and roads of all kinds including rural roads, railways, air and water transport, irrigation, electric power, telecommunications, water supply and sewerage system.

The Eleventh Plan had estimated that we would need to invest over Rs.20 lakh crore in infrastructure over the five year period. This was more than double the realised investment during the Tenth Five Year Plan. The Plan also recognised that such a large investment in infrastructure could not be funded from public resources alone. This is because the government would have to necessarily devote a large portion of its own resources to critical livelihood support programmes and to providing access to education and health services which are crucial to ensuring inclusiveness of the growth process.

The strategy for infrastructure development therefore involved combination of public investment supplemented by private investments wherever feasible. The mix was expected to vary from sector to sector, and also from region to region.

Our experience shows that private participation in infrastructure development is indeed a feasible proposition and can help expand infrastructure much faster than it would have relying only on public resources. The telecom sector is the most compelling example of this proposition. The Eleventh Plan target for tele-density was realised ahead of schedule, in the third year of the Plan itself. The addition of 1 crore subscribers every month with user charges among the lowest in the world, has really taken the communication revolution to the doorstep of the ‘aam aadmi’. We have also seen many successful PPP projects in roads, ports, airports and electric power. We need to do much more in these areas.

The Central Government has developed a fairly robust framework for PPPs which balances the legitimate requirements of the investors and the needs of the users and also ensures transparency. Model documents have been developed for several sectors. Projects are awarded on the basis of competitive bidding and standardisation of documents and the bidding processes have contributed greatly to the promotion of transparency.

One of the reasons why it is difficult to attract private investment in infrastructure is that all projects may not be able to generate adequate revenue streams. The projects may have high economic rates of returns but may not be financially viable. The Central Government has dealt with this problem by offering a capital subsidy which is competitively determined through the bidding processes. Since the capital subsidy is only a proportion of the total capital cost, government resources effectively leverage a large volume of private resources. This Viability Gap Funding arrangement can be accessed by state governments as well. The scheme has been received well and a large number of PPP projects have been approved under this scheme.

I am happy to note that our states are now actively pursuing infrastructure projects, including through PPP arrangements. Some of the states have made notable progress in this area, while others are at earlier stages. The Finance Ministry and the Planning Commission are actively engaged with the state governments to help them in managing the PPP process.

You will be hearing directly from my colleagues in charge of the various infrastructure sectors about developments in each sector. I will therefore only touch briefly on these.

The power sector is crucial for fuelling the 10% growth we are aiming at. The capacity addition achieved already in the Eleventh Plan period is much higher than the achievement anytime in the past. But we have made less progress in this area than we should have. Power shortages remain a problem in many parts of our country. The distribution segment, which is entirely in the states sector, continues to be fragile.

We are trying to tackle the problem of high Transmission & Distribution losses through a restructured Accelerated Power Development and Reform Programme which has just begun to roll out. We must also take steps to operationalise open access as early as possible to enable bulk consumers to buy electricity directly from competing producers so that a vibrant market is created where producers can invest for eliminating shortages and also reduce tariffs through competition.

In the roads sector, we are very seriously working towards accelerating the road building programme in all parts of our country, especially the north-eastern states and the state of Jammu and Kashmir. Some changes have been made in the terms of concessions responding to stakeholder feedback, and with these changes we expect strong investor interest in PPP road projects.

The Delhi-Mumbai and Ludhiana-Kolkata dedicated rail freight corridors are a transformative initiative of the Indian Railways. While much of the investment in the railways is necessarily in the public sector, PPPs have nevertheless been envisaged in many areas. Metro rail projects are being increasingly pursued in many cities, through various models including PPPs.

The Jawaharlal Nehru National Urban Renewal Mission is designed to bring in a quantum improvement in urban infrastructure. I would urge the states to actively identify and pursue the possibilities of PPP in all segments of urban infrastructure which require both expansion and upgradation.

In civil aviation, Delhi and Mumbai airports are currently undergoing a complete transformation while airports at Hyderabad and Bangalore have already been completed and operationalised through PPP. The Airport Authority of India is also upgrading several of its airports including the two metro airports at Kolkata and Chennai.

The government has also initiated an ambitious plan for expansion of the port sector, including through PPPs.

Issues involving the logistics sector need to be seen in a holistic manner. We have constituted a High Level Committee under the chairmanship of Dr Rakesh Mohan to prepare an integrated plan for the development of the transport sector in our economy.

I have already mentioned that our strategy of inclusiveness requires high priority to the social sectors, especially education and health. While these efforts will have to be primarily in the public sector, there may be merit in bringing in public private partnership in these areas as well. We need to work on PPP models in these sectors that are fully consistent with the objective of providing access to the underprivileged sections of our society.

Effective private sector participation in infrastructure would require a large mobilisation of resources through our financial institutions. The Finance Ministry has taken several initiatives in this regard. Preliminary exercises suggest that investment in infrastructure will have to expand to $ 1000 billion in the Twelfth Five Year Plan. I urge the Finance Ministry and the Planning Commission to draw up a plan of action for achieving this level of investment.

We also need to review the approach that should guide our regulatory institutions in different sectors. An Approach Paper on the subject was published by the Planning Commission after extensive consultations with experts and stakeholders. I have asked the Commission to prepare a draft bill outlining the next stage of regulatory reform. We would welcome the views of all stakeholders in this very important area.

Finally, I must emphasise that a successful infrastructure development strategy depends crucially and critically on implementation. Both the Centre and the states have to give top priority to strengthen implementation capabilities. We have set up the Cabinet Committee on Infrastructure to monitor progress in this area. I have asked the Planning Commission to engage in detailed consultations with each of the infrastructure ministries and come up with agreed targets of achievement for each Ministry, in order to identify slippages at early stages and take corrective action as necessary. I would urge the states to adopt similar tight monitoring so that we achieve the best possible outcome in the remaining two years of the present Eleventh Five Year Plan.

With these words, I once again wish your deliberations all success.”