Bidding for 6,000 km of road projects by March

Chennai: By the end of the financial year, about 6,000 km of road projects, that will be executed under the ‘build, operate, transfer’ model, would be bid out, Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, said.

Delivering a ‘Power Talk’ to the students of the Great Lakes Institute of Management, Mr Ahluwalia said this while describing the thrust given to infrastructure development.

Observing that the Indian economy was cruising along at a steady rate of nearly 9 per cent when the global economic downturn hit it, Mr Ahluwalia noted that the way out of the crisis is demand generation by investing in infrastructure.

He said that in the last four years, infrastructure development had gathered momentum, thanks to the public-private-partnership model put in place, especially for road development. Under the model, the government defines the project, including the toll and offers a capital subsidy of 40 per cent of the estimated cost, and bids out the project.

Because of the competitive bidding, the demand for the capital subsidy has often come down to 15 per cent, and in some cases, even negative the concessionaire pays an upfront fee to secure the contract.

This, by a large measure, solves implementation issues, which were the main stumbling block for infrastructure development, he said.

Outlining the Government’s response to the economic slowdown, Mr Ahluwalia said that first the Government sought to restore confidence in banks, by assuring the public that their deposits were safe, and then ensured that banks had enough liquidity.

Today, the banking system has surplus liquidity and the banks have parked about Rs 60,000 crore with the RBI under reverse repo. The RBI has sought to discourage this by reducing the reverse repo rate, effectively making it less attractive to the banks.

Now, both the Government and the RBI are telling the banks to lend more. While this is being done to ensure credit supply, on the other side, the Government is also trying to create demand by stepping up investments in infrastructure.

Apart from the road projects, the Government has also cleared three ultra mega power projects and approving the fourth is in the offing.

Mr Ahluwalia said that with while the economic slowdown is affecting those who benefited by the upswing more, the poor of the country have been insulated from its effects. Besides, the Government has put in mechanisms such as the National Employment Guarantee Scheme, which can be used to address any distress situation.

More sovereign guarantees to lure investments

Mr Montek Ahluwalia said that he favoured government giving sovereign guarantees to debt raised to finance infrastructure projects.

Noting that the government has guaranteed Rs 10,000 crore of debt that is to be raised by the India Infrastructure Finance Company Ltd, he said he expects to see more sovereign guaranteeing of debt to finance infrastructure projects.

He said that the ability to provide sovereign guarantees is restricted by the Fiscal Responsibility in Budget Management Act (FRMB), but the Act was framed when private sector investment was available.

“The lack of demand we expect to see next year provides a strong argument in favour of fiscal stimulus which means giving sovereign guarantees if we have to raise debt,” Mr Ahluwalia said.

He said that the fiscal deficit for the current year would go up significantly, perhaps even up to three percentage points of GDP over and above the Budget estimates.