Economics India

Wednesday, January 04, 2006

Bharat Nirman: What Are the Risks?

India faces a near crisis situation in all categories of urban and rural infrastructure requiring billions of dollars of investments, which public sector is unlikely to be able to raise on its own. There is thus a clear need for private and foreign investments in infrastructure, which will happen only if the policy environment is right. The private sector will not step in unless financial returns on investments are attractive and risks are manageable, especially the political risk which in India has many dimensions including bureaucratic delays, corruption, and interference in procurement and pricing of inputs and outputs. The flow of FDI is growing in recent years but is still not a scale that is sufficient to meet the massive resource gap – FDI will be of help only at the margin and that too predominantly for urban projects.

Against this background, the “Bharat Nirman” initiative, launched by Prime Minister, Dr. Manmohan Singh, in December 2005 is an ambitious plan for strengthening India's rural infrastructure including water supply, power, housing and roads involving an outlay of about $40 billion during the next four years or so (2006-09). Most of this funding is expected to come from the Government's development outlays. Government is also proposing a specific financing window through the National Bank for Agriculture and Rural Development (NABARD) for selected components of Bharat Nirman.

It is indeed gratifying to note that GOI has thought of public-private partnership (PPP) in rural infrastructure, previously unthinkable, with involvement of local governments (panchayats). The Planning Commission is reportedly working on models to be used for rural PPPs. State governments will be the key implementing agencies, with panchayats engaged in generating demand without which service delivery would not be effective. Bharat Nirman has set ambitioous goals in six selected areas of rural infrastructure - irrigation, water supply, housing, roads, telephony and electrification.

It remains to be seen if GOI and state governments which together account for annual budgetary deficits equal to about 10% of GDP will be able to provide required priority in allocating resources for the Bharat Nirman initiative and if pachayats could mobilize required capacity to efficiently plan and implement the program. Also, unless local communities are directly made responsible to design, oversee, implement, and manage finance for various elements of the program (outside the pachayat bureaucracies), Bharat Nirman seems to be at risk!


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