Friday, February 25, 2011

Survey Calls for Rapid Reduction of Infrastructure Deficit

The Economic Survey 2010-11 has said that rapid reduction of the infrastructure deficit was the key to competitiveness in an increasingly localized environment.

The Survey highlights that financing infrastructure would be big challenge in the coming years and to meet the challenge, innovative ideas and new models of financing would be required. Channeling domestic and foreign financial savings of this scale into infrastructure requires a judicious mix of policy interventions which balances the growth and stability objectives.

The Survey calls for huge capacity addition in infrastructure in a time bound manner while ensuring that projects embodied value for money and investment results in world class infrastructure. Infrastructure should be at the same time affordable and sustainable.

The Survey also calls for urgent action for addressing the programmes of (i) tending of unviable projects; (ii) bad quality of engineering and planning at DPR stage;(iii) lack of standardized and sub-optimal contracts;(iv) land acquisition delays and slow approval processes especially environmental and forest clearances:(v) insufficient optimization of procurement costs (of PSUs) (vi) weak performance management in nodal agencies and PSUs and (vii) inadequate availability of skilled and semi-skilled manpower.

There is also an urgent need to streamline land acquisition and environmental clearance for infrastructure projects. There is a strong case for bringing in parity between the compensation package admissible under the Land Acquisition Act 1894 and that applicable to land acquisition under the National Highways Act 1956 to enable faster acquisition. The Survey observes that it is important that the 80% minimum norm for physical acquisition of land before tendering should be strictly enforced through suitable disincentives. In case of road expansion projects, there may also be a case for excluding the land which is part of the original lanes from being counted as part of the acquired land. A national forest land bank, with clear paperwork and titles, could significantly reduce the approval time for forest clearances.

According to the Survey, significant upfront investment in engineering and planning is required for all projects. Cost overruns may also be mitigated by moving away from item rates to lump sum EPC contracts for large projects and creation of greater capacity for project management and monitoring through a multidisciplinary agency. Investment in building managerial and technical capabilities of executing agencies at par with the private sector is crucial. A way forward would to kick-start a construction-focused vocational training programme through a commercially viable PPP.

The Survey advises that there is a need to reassess the existing criteria and priorities used for allocation of funds to different sectors, for example, taking into account the growing need for peaking power rather than the base load capacity in the power sector, greater focus on rail and water transport, more demand-side measures in water rather than making huge investments in water supply augmentation. It calls for a macro-level approach and a greater inter Ministerial coordination.

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