SPEECHES / STATEMENTS

PM Inaugurates Conference on Infrastructure

October 7, 2006, New Delhi

I am very pleased to be here today to inaugurate this conference on the challenges and opportunities of building infrastructure in India. The theme of this conference is extremely relevant to the economic future of our nation and I believe that it will afford an opportunity for a wide range of participants to appreciate the challenges and opportunities in India’s infrastructure sectors.

India’s economic performance in the past few years – particularly in the last three years - has been commendable on many counts. Economic growth has accelerated and we are now averaging an annual growth in excess of 8%. A fascinating story is unfolding and the entire world is watching with wonder the emergence of India as a major economic force. However, this growth has not been without limitations. Many marginalised sections of society and large segments of the farming community have not benefited from this growth process. We need a faster and more inclusive growth process. Both objectives present challenges, but both are achievable through sustained effort. Our government is investing intensively in the social and welfare sectors so as to improve the capabilities of our people to make them active participants in the evolving growth story.

While a growth rate averaging 8% is certainly a matter of satisfaction, I do believe we can do even better. If we have to make a decisive impact on poverty and provide productive employment for our young population, we must further accelerate the pace of growth to 9–10%. The broad goal of the Eleventh Plan will be to achieve this objective.

A growth rate in the vicinity of 10% is not impossible to achieve. Most independent observers believe that the Indian economy has the potential to grow at this rate. But, this will not happen automatically. We will need to run hard just to stay where we are. Maintaining a growth rate of 8% would need continual improvements in our policy regime. To raise it further would require sustained efforts to boost our agricultural and manufacturing growth. Most importantly, our growth potential will be realized only if we can ensure that our infrastructure does not become a severe handicap. The quality and capacity of our infrastructure is certainly a matter of concern to one and all. We must deal with this deficit.

Ladies and Gentlemen,

Infrastructure development requires huge resources. The Planning Commission has estimated that investment in infrastructure - defined broadly to include road, rail, air and water transport, electric power, telecommunications, water supply and irrigation - will need to be of the order of about Rs. 14,50,000 crore or US$ 320 billion during the 11th Plan period. This is a requirement of an immense magnitude.

Not all of this investment can come from public resources. As I had said earlier, this is a time when we must expand investment in the social sectors. They will be a priority charge on the Government’s own resources as they are not amenable to private investment in a big way. If this is so, the public resources available for investment in physical infrastructure will be limited, and certainly far short of what is needed to meet our growth ambitions. Hence, it is imperative that we explore avenues for increasing investment in infrastructure through a combination of public investment, public private partnerships and occasionally, exclusive private investments wherever feasible.

Among these, the PPP approach is best suited for the infrastructure sector. It supplements scarce public resources, creates a more competitive environment and helps to improve efficiencies and reduce costs. Our experience shows that competition and PPPs can help in improving infrastructure. The opening of the telecoms sector is a case in point. Opening up the sector has led to massive investments and expansion in supply coupled with improvement in quality. The target of 15% teledensity set for the year 2010 will be realised this year itself. Further, the cost of service today is lower than that in any other country in the world. Similarly, competition in the aviation sector has resulted in the creation of new capacities and much greater choice for travellers. The annual growth in air traffic has been in excess of 20% and fares have dropped significantly. Even in the road sector, PPPs have demonstrated their efficacy wherever they have been used such as on the Jaipur-Kishengarh highway.

Ladies and Gentlemen,

While these are important advantages, it must also be recognised that attracting private capital through the PPP or any other route is neither easy not automatic. A key pre-requisite is to lay down a policy framework that assures a fair return for investors provided they attain reasonable levels of efficiency. But the policy must also protect the interests of users, especially the poor. PPPs are useful only if they assure quality supply at reasonable cost.

Balancing all these interests is difficult. But it needs to be done. Tariffs and service quality need to be regulated and consumer access protected. Since a large part of investor risk stems from uncertainty about government actions, we must ensure clarity in the policy and regulatory framework that governs private participation in any area. Sanctity of contracts must be observed, and dispute resolution mechanisms need to be speedy and effective. There must also be assurance of a level playing field amongst competing suppliers, a consideration which becomes very important when private suppliers operate in competition with public sector suppliers as is the case in telecommunications, air travel, the power sector and railways. All this requires the establishment of independent regulatory bodies with an appeal mechanism. These are difficult but relevant issues and we must flex our minds to arrive at arrangements that suit our requirements.

An alternative to independent regulation is regulation through contracts which transparently detail the rights and obligations of all parties and rely on robust competitive bidding for award of concessions. The Model Concession Agreement route which is being used in the highway sector follows this approach. While flexibility in MCAs is needed to address project-specific requirements, standardisation leads to greater certainty, broad public acceptability and reduction in transaction costs and time. I believe that in future, PPP projects should be awarded on the basis of transparent competitive bidding with a standard concession agreement to the extent possible.

Ladies and Gentlemen,

There are some areas in infrastructure where the externalities caused by projects cannot be captured by project revenues alone. Such projects, which are marginally viable or unviable, can be made financially attractive through a grant. The Government has created a Viability Gap Funding arrangement for such projects in the infrastructure sector through a window in the Finance Ministry with a time-bound decision making process. I am told that several proposals for Viability Gap Funding have already been received from many states and I expect that this window will be effectively used to leverage private investment into infrastructure across the country. The Government has also set up the India Infrastructure Finance Company in order to provide long-term debt which is presently not available to project promoters.

Ladies and Gentlemen,

In a federal country like ours, building world-class infrastructure is critically dependent on the cooperation and support of State Governments on many aspects such as law and order; land acquisition; rehabilitation and resettlement; shifting of utilities; and forest and environment clearances. I am happy to learn that several State Governments are actively participating in this conference. I hope they will find it useful to hear from the Central Ministries the practices being developed to promote PPP projects in a transparent, efficient manner. The Finance Ministry and the Planning Commission are actively engaged with state governments to help them in managing the PPP process. I would urge the states to intensify their efforts to build quality infrastructure so that the pace of investment and growth in their states is accelerated.

Ladies and Gentlemen,

Our government is paying focused attention to infrastructure through a Committee on Infrastructure which meets regularly to discuss and finalise policy initiatives. It has developed a sound framework for PPPs in infrastructure sectors including roads, railroads, ports and airports with sector-wise programmes and financing plans. You will hear more about these from my colleagues who will be addressing you later in the day.

Our government has made substantial headway in giving a push to all areas of infrastructure. In the roads sector, the four-laning of the Golden Quadrilateral has not only been nearly completed, but a program for six-laning the entire Golden Quadrilateral on a BOT basis has been approved. This alone would cost over Rs 40,000 crores of which only 15% would come from budgetary support. A program for developing 1,000 km of expressways has also been initiated. We anticipate investments of Rs. 220,000 crore by 2012 in the modernisation and upgrading of highways in the country.

I am particularly happy to say that the Indian Railways have achieved a remarkable turnaround in the last financial year, aided by higher efficiency and tariff rationalization. They are preparing an ambitious investment program of over Rs. 300,000 crore of which almost 40% is expected to come from the private sector through PPPs. Private container trains, dedicated freight corridors, development and modernization of stations, setting up logistics parks and warehousing are all areas expecting significant private participation.

In civil aviation, a financing plan for airport infrastructure has been developed, which envisages a total investment of Rs. 40,000 crore in the sector by 2012. In addition to upgrading and modernizing Delhi and Mumbai airports and setting up greenfield airports at Bangalore and Hyderabad through private developers, other greenfield airports have also been identified for development by private entities. A plan for the development of 35 non-metro airports by AAI has been approved. A new civil aviation policy will be announced soon.

Building on the successful experience with private operation of berths at major ports, the government is planning to develop 76 new berths by 2012 of which 53 are to be undertaken through PPPs. An investment program of Rs. 50,000 crore by 2012 is envisaged, in which PPPs are expected to play a dominant role.

Ladies and Gentlemen,

I am very concerned about the persisting problems in the power sector. We cannot hope to be an economic powerhouse if a basic service like provision of reliable electricity is not assured. Power shortages in most parts of the country have not been alleviated to the desired extent and the financial viability of this sector as a whole continues to be fragile with our SEBs making huge losses. The bane of power sector seems to be the high transmission and distribution losses which account for almost 40% of the electricity produced. No civilized society nor a functioning commercial entity can sustain losses on such a scale. No matter what reform model we adopt, until these losses are checked, we may not be able to turn around the power sector. I would urge State Governments to take campaign–type measures to reduce T&D losses in a time-bound manner. Simultaneously, we must take steps to increase generation capacity. While significant capacity continues to be added in the Central sector, I would urge the State Governments and the private sector to intensify their efforts in this direction. We must also open up the power sector to competition as that would not only provide choice to consumers but also bring efficiency and cost reduction. Moreover, enabling power producers to sell directly to bulk consumers will help create a market that would accelerate investments in generation capacity.

Ladies and Gentlemen,

In the coming weeks and months, we will be finalising the remaining elements of the policy, regulatory and institutional framework for PPPs in infrastructure. In keeping with our philosophy of openness and interest in ensuring that this framework reflects the wisdom of all stakeholders, we will continue to hold consultations on key issues as they emerge. I urge you to participate actively in these consultations. I hope this conference, which I consider extremely relevant for addressing the investment needs of our nation’s infrastructure, all success.

Thank you.