Make the existing incentives long-term

Written by Amrit Pandurangi | Updated: Jan 27 2010, 06:10am hrs
The good news is that the government has clearly recognised that the infrastructure sector is a clear priority and indeed that development and growth of the economy can be infrastructure-led. All infrastructure sectors are important, but when there are limited resources, some sectors obviously have to become more important than others. As we have repeatedly seen, the actual requirement of money is quite huge in each sector. And if we have to make infrastructure lead economic growth, we obviously need even more than just to catch up with the backlog. With the deficit that we already have and with stimulus already provided, the best thing to do would then be to retain the present levels without withdrawing any of the incentives to the sectors. My simple suggestion would be to ask the finance minister to make the existing incentives long-term and give certainty to their continuity, as infrastructure investments are always long-term investments.

Without asking for more than what the finance minister can allocate for the sector, I would only like to see some changes in the budget processthree improvements actually.

While the Union Budget exercise may not be the only or even the main platform for doing everything right about infrastructure, it can do its bit and, equally importantly, send strong signals about the governments intentions on the importance of infrastructure sectors.

First, as a country India is committed to doing everything right for controlling the climate change issues. Why not then introduce a green rating for all infrastructure projects from this Budget onwards Those sectors and projects that have a better rating could be given priority in allocations (after considering socio-economic priorities). Such action will start making every ministry think towards assessing the green angle about their schemes/projects. We may not get it right the first time, but that is okay. We can always learn and improve.

Second, I believe that all infrastructure sectors should certainly ask for and get more moneyin order of priority for (a) maintenance of assets created, (b) rehabilitation of old assets, and then (c) creation of new assets. In the last five years, we have created many infrastructure assets with public money and we will continue the pace with more and significant assets created soon across all sub-sectors roads, airports, railways, water and sanitation, power plants, etc. What we obviously dont want is that these assets are not maintained properly and go down in quality at a fast pace. It is a well known fact that public assets are never maintained in good shape. Though there are many reasons for this, lack of money is one the main reasons. It is, therefore, important that the government doesnt assume that maintenance will somehow take place. It is necessary to give maintenance priority over new assets-creation. Priority should also be given, next, to rehabilitation.

By now, however, every infrastructure sector has realised that getting more money is not the main solution to solving the problems. And nor is it putting policies in place. We have most of the policies in place and most of the money in place (particularly after making the public-private partnership the main format of infrastructure creation).

My third suggestion, therefore, relates to strengthening our weak points. We are realising increasingly that our weakest point is execution. Project after project is getting delayed with all the consequent rise in costs. Planning is very weak and coordination across agencies is almost non-existent. Approvals are being given and money is being allocated for poorly prepared projects. One can very well ask: what can the Budget do for execution problems

While a Budget cannot be the main way to improve project planning and execution, it can certainly be one of the key instruments. For example, budgetary allocations made for infrastructure projects should not be released if satisfactory planning and preparation is missing. Projects which do not include a strong project management component should not be included in the forthcoming Budget for any significant allocations, even if there is political pressure. All concerned ministries should be asked to obtain certification from professional rating agencies that the projects are well prepared, ready for execution, are part of the approved priorities of the sector and that they have thought through future annual budgets for long-term maintenance. Without proper assessment and appropriate ratings, projects should not be given budgetary allocation, however important they may otherwise be.

The writer is India leader for infrastructure practice, PricewaterhouseCoopers