Will Infrastructure Spending Lead

The Growth Story of India in the Next Ten years?

Contents
Swathi Sree. P...........................................................................................................................2

Srikanth SNR Rayasam ............................................................................................................4

Arpit Pandya..............................................................................................................................6

Rakesh Kumar Choudhary ........................................................................................................ 9

Hitesh Kumar Kyal...................................................................................................................11

Tarun Mehta ............................................................................................................................13

Anshul Gupta...........................................................................................................................15

ANUPRIYA GUPTA.................................................................................................................17

Parivesh Gupta & Jaideep Somani .........................................................................................19

Piyush Jain ..............................................................................................................................21

Swathi Sree. P
Course Name: Post Graduate Program in Human Resource Management, MDI Gurgaon

Year of Graduation: Batch of 2011

email id : 09pghrpswathi_s@mdi.ac.in

Will Infrastructure Spending Lead the Growth Story of India in the Next Ten years?

With growing quality and availability of human talent in hand and good growth records in recent
history, it is realistic to predict that the next ten years will bring to our doorstep the best of
opportunities India has ever witnessed. The preparedness of our nation towards converting
them into impactful improvements in socio-economic standards of the bottom line lies in the
hands of the strategy makers and the steps they take in advance towards the same.
Infrastructure spending is certainly one of the highly potential tools that can be used to create a
process which simultaneously addresses several perennial issues which are hampering the
development of our nation.

With the economic crisis is infecting the health of Indian economy and retarding its growth rate,
infrastructure investment has the potential to improve capital mobility as well as generate
adequate employment avenues in the future. Also, it is time that the approach of our
government to plug-in temporary solutions for instant relief generation and self gratification
should be substituted by creation of more sustainable and long term solutions which can be re-
iterated in application if necessary. Infrastructure spending also plays a vital role in facilitating
the same. For instance, our policy makers should look beyond relief packages for victims of
flood and drought and give more emphasis to proposals which promise calamity management
by inter-river connectivity and other measures which target the cause and not the symptom. It
should be looked upon as an agent to create a network of tier-two cities to decentralize the
working population concentrated across the major metropolitan cities as well as homogenize the
standard and quality of living across the length and breadth of the country. It is the development
wagon which can build more cities to exemplary standards which Delhi today achieves. We
should look up to it as a cultivation ground for the industrial and technological future of our
nation. It takes the role as the change agent that re-writes in light the energy future of our
nation. It is can strengthen the life-line of our nation by creating world-class medical facilities
and be the dawn to new industries like medical tourism that never existed a decade before.
It is important for us to understand that there is no issue that can be addressed in isolation to its
environment. The instrument of infrastructural investment should be cautiously used in a
complicated grid of interlinked target points in a way that every action most optimally
compliments the other variables of the ecosystem. Such an integrated approach when designed
and skillfully implemented will certainly unleash a new era in the growth of India.
Srikanth SNR Rayasam
PGPM 2009-11, MDI Gurgaon

Mob: 9718480160

Alt email: srikanth.rayasam86@gmail.com

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

The Indian economy has come a long way since early days of liberalisation to count among the
fastest-growing economies today. Astronomic GDP growth rates, fuelled by the flourishing
outsourcing industry and an emerging, technically-educated middle class, have ensured that no
rational foreign investor can afford to keep India out of his investment plans. The government,
realising India’s immense potential as a low-cost, out-sourced service provider, ensured full
support for the industry in all ways possible. A flourishing industry meant higher salaries, and a
richer consumer meant more disposable income, which in turn meant more spending, leading to
robust demand and a flourishing industry and economy.

The story, however, is not as rosy as it seems. The recent rains at Mumbai adequately exposed
the creaking infrastructure of India’s financial capital, which crumbled under a few feet of rainfall.
The recent tragedy at the Delhi Metro site, loopholes in an ageing railway system, constant
airport delays, lack of institutions of higher education, inadequate infrastructure payments at
Tier II cities, poor roads, dilapidated shipping and sports facilities raise ugly fingers at the
government’s acute negligence of infrastructure spending. The problem lies right at the roots –
year on year, governments, for obvious reasons, have preferred implementing populist
measures over initiatives for real development. If real trade and growth is to be promoted, India
must build sophisticated and reliable infrastructure that would truly justify its claim as a fast-
growing, efficient economy.

The recession has taught us hard lessons. In the absence of consumer spending, government
expenditure would be the only growth driver for the economy, and the onus now lies on the
central and state governments to boost infrastructure spending to prepare the country for the
next wave of growth. The recent union budget has a few encouraging pointers to this end and
acknowledges the role of the private sector in building and operating the infrastructure of the
country. Public-private partnerships for infrastructure development have flourished in the past,
and seem to be the way forward in the future as well. The toll-gate revenue sharing system and
modernisation of the Delhi and Bangalore airports were encouraging signs. However, there is
still is a lot to be desired. India spends only 4.5% of its GDP on infrastructure, compared with
China, India closest growth competitor, which spends around 10%. China, which successfully
hosted the recent Olympics, also has various schemes in the pipeline to boost this further. The
time is right to take a leaf out of our neighbour’s book; if India were to be a manufacturing and
exporting superpower in the future, it is of utmost importance that we build upon our existing
infrastructure and prepare ourselves for the challenges to be faced in the years to come.
Increasing infrastructure spending, while improving private participation, is the way forward to
achieve India’s vision of being an economic superpower.
Arpit Pandya
PGPM '08-'10, MDI Gurgaon
Phone:+919990130021,

Email: Arpitpandya@gmail.com

Constructively Speaking….
“But I have promises to keep, and miles to go before I sleep, and miles to go before I sleep.”
Robert Frost

“Infrastructure development was critical for inclusive growth, which would be important for India
to continue on the growth path” said the than commerce minister and now the road & transport
minister Mr. Kamal Nath at the World Economic Forum at Davos in January 2009.

The above statement is being echoed by various sectors of the industry. The Asian
development bank in its report on Public-Private Partnership clearly mentions the need and
importance for the development of the infrastructure to attract more investments in the still
underdeveloped sector of our country. India's economic performance, particularly over the past
three years, has been robust on several counts. According to IBEF, economic growth has
accelerated and is now averaging over 8 per cent per annum. A growth story unfurling. To
sustain this growth it is imperative to develop the core of any economy. With adequate labor
force and the growing market present, it is the need of the hour to concentrate on the
development of the 3rd more important pillar “the infrastructure”.

Driven by government initiatives, investments in India’s infrastructure development are surging.

Political parties have realized the criticality of infrastructure in sustaining economic growth. The
Government recognizes the need to improve infrastructure and has stepped up investments in
this direction. The 11th planning commission (2007-2012) has estimated that investment in
infrastructure - defined broadly to include road, rail, air and water transport, electric power ,
telecommunications, water supply and irrigation - would need to increase from 4.6 per cent of
GDP to between 7-8 per cent. This would require an investment of more than US$ 320 billion
over the plan period (See table for some key spendings).
Projected Investment for Development of Infrastructure Sector in India (2007-
2012,Indiastat.com)
(Rs. in Crore at 2006-07 Prices)
Sectors Investment
Electricity (Including Non-Conventional Energy) 666525
Roads and Bridges 314152
Telecommunication 258439
Railways (Including Metro Railway) 261808
Irrigation (Including Watershed) 257344
Water Supply and Sanitation 143730
Ports 87995
Airports 30968
Storage 22378
Gas 16855
Total (Rs. in Crore) 2060193

With growth percentage going down and economy looking for fresh investments this amount of
spending will clearly be an indicator of recovery. A variety of schemes have been launched by
the government like deregulation of the investment policies, more incentives for FDI,
announcement of significant public expenditure, privatizing significant government-owned
infrastructure assets, establishment of a national highway toll system for fair prices, viability gap
funding arrangement, setting up of India Infrastructure Finance Company, commencement of
Bharat Nirman Programme for Rural Infrastructure and National Urban Renewal Mission. By
such initiatives government is planning to attract more FDI’s and private players to enter into
this sector and with the help of government improve the infrastructure situation of India which is
lagging behind to China, the biggest economic competitor of India. Through these proposals the
government is able to attract some key international players to invest in India (see box)

Some key International players in India

Company Investment Project
Sea King Infrastructure US$ 367 New offshore trading centre close to
million Mumbai
IJM and Road Builders Malaysia US$ 13 Turning 14,000 KMs of narrow national
 billion highway into four lane motorways

Parsons Beinckerhoff US$ 140 Creating Indian bridge-building facility

million
Japanese Bank of International - Delhi Metro
Co operation (JBIC)
World Bank and ADB - Different Infrastructure projects
Barclays Bank US$ 88 Investment in Indian Infra companies
million
Deutsche Bank US$ 260 Different Infrastructure projects
million

With this amount of investments and more to come India definitely will be able to sustain the
magic figure of 9 % as the growth rate.
Rakesh Kumar Choudhary
PGPM 2008-10, MDI Gurgaon

Mob No. 9268182863

Email: pg08rakesh_c@mandevian.com

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

Relation between infrastructure spending and economic growth has been well established.
Being a public good, it poses property of “non-exclusivity” which means it serves both rich and
poor alike and hence help in poverty reduction. It improves industrial productivity, standard of
living and provides for millions of job opportunities.

Rapid growth in last few years has put tremendous pressure on the infrastructure. Present
spending on infrastructure is 5 % (10th Five year plan) which well below other comparable
nations (China has 9%). It is estimated that for every 1% less spending on infrastructure, there
is 1% loss in GDP. India has grown at the average rate of 8.8% in the last Five Year Plan and to
sustain such growth rate over longer periods of time, it becomes necessary to raise the gross
capital formation (GCF) in infrastructure from 5% to 9% at the end of the 11th Five Year Plan.
Present economic slowdown has brought both opportunities and challenges in infrastructure
spending. It has been seen from the previous crisis of Latin America and East Asian crisis that
to manage the ever increasing fiscal deficit, government invariably cuts the public spending in
the infrastructure, which has proved to be a wrong policy move as it only prolongs the
recessionary period and also affects the economic growth in the medium term. Having said that,
fiscal responsibility and budget management (FRBM) Act of 2003 and rising fiscal deficit and
inefficiency of public sectors has put a limit on the public spending on infrastructure. Therefore,
it has become important that private investors play an active role in infrastructure projects. They
bring efficiency and capacity expansion as we have seen in the telecom industry. However, long
gestation period, high capital to output ratio, low availability of long-term financing and high risk
low return attributes has deterred entry of private sector in a big way in the past.

Government has realized the huge opportunity lying ahead and has started to act in the right
direction. According to Planning Commission, it is estimated that to attain the average growth
rate of 9% over the eleventh five year plan, total of $502 billion of infrastructure spending is
required. Besides that, share of private investors in infrastructure projects need to be raised
from present 20% to 30%. To achieve the same, Government has increased allocation for
infrastructure in the 2009-10 budgets. Also, it has taken various innovative measures like BOT
model, annuity model and creation of various SPVs (e.g. IDFC) to encourage private
participation. Various policy shifts like relaxation in FDI cap, amendment of National Highway
Act of 1956 and steps to encourage PPP model has been taken. The resolve of government can
also be understood from the fact that proven performer like Mr. Kamal Nath has been allotted
Road and Transport Ministry when he could have got more lucrative portfolio.

At last, Government need to ensure that various obstacles like political interferences, social and
environmental issues and opposition from various self-interest groups like trade unions do not
derail the highly potential and ambitious plan taken.
Hitesh Kumar Kyal
PGPM (2009-11), MDI Gurgaon

Email: pg09hitesh_k@mdi.ac.in

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

September 5

History tells us that countries that have developed very quickly have done so on the back of
their rapid development in infrastructure sector. British Empire did that, so did Americans in their
country. The history has beckoned on our nation, India to wrest the initiative and write its own
growth story. There is tremendous opportunity for India to keep the worldwide prevalent R-word
and its after-effects at bay. We stand at crossroads from where we can take India to the next
level. Last general elections have given a mandate which empowers a stable UPA government
at centre to make bold decisions for India. The government targets US$1.5tn over the next
decade, as compared to US$0.2tn in the last five years. This shows a focused approach from
the government to increase spending in infrastructure. There is a need to give private players
required confidence and support to take up infrastructure building and the government has
already started taking steps in that direction. The raw material prices are favourably low to
invest in infrastructure projects. The availability of cheap labour is a boost and with the NREGA
scheme employed by government, rural and the unemployed youth is already in the thick of
action. There is even greater need for technically competent labour, and this makes jobs
available to engineers and managers giving them a better option (than an MNC) to be part of
nation building. The factors that have exposed India’s ever inadequate infrastructure are –
economic growth, increased urbanization, and rising global integration. There is a need for
holistic approach to infrastructure development because focusing on only one aspect would
again lead to nowhere. The government has already started movement in this direction with
dedicated projects in ports, airports, roads, railways, telecom, power, water supply, etc. The
capital required is also not a big problem now, fuelled by increasing tax collection, greater
money available – both domestically and outside. All nation and companies want to be part of
the unique success story which is still long way away its maturity. The focus on infrastructure
development would also automatically take rural India in its fold which would write the success
story for the nation because this is one sector which is not affected by recession, and this is the
best period to get rural sector into bigger picture. The Father of the Nation had once said about
the importance of rural India in its growth and today about 60 odd years after his death, his
words seem to loom large on the country’s fate. It is time that government in our country rise
above bureaucratic delays and age-old laws, and act smart because this is our time, the best
time when we can support our growing economy by developing our infrastructure. Otherwise,
the beautiful shape that our country’s growth might take may get a very major jolt. Only way that
we can maintain and increase our growth rate is by developing our infrastructure, because the
current capacity is already getting utilized very fast.
Tarun Mehta
PGPM Batch of 2010, MDI Gurgaon

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

With 638,365 villages in India, comprising 72% of its population, the growth story of India can be
written only where the true India lies. Still most of the villages lack the basic infrastructure and
need huge investments to provide the basic facilities and more so the connectivity.

Much before looking at the infrastructure domain, we need to focus on the basic problem which
is of education and employment. Till the time people don’t feel the need of good education, the
scenario at the basic level of the country is not going to change.

The growth of any country is ultimately propelled by the demand from within the economy,
which in India’s case will get the ultimate momentum only when the 1027 (??) million people
living in the Indian villages drive the demand side. This is the aspect, which will ultimately drive
the growth story of the nation. Take any sector be it FMCG, banking or telecommunications, the
rural India has far reaching effects for marketers. And, to make all these businesses grow, the
rural India must have the purchasing power to fulfill their dreams; only then the supply demand
cycle will complete and will create a “pull effect” in the economy, which will automatically drive
the economy to great heights.

Talking about the infrastructure requirement, we can divide the infrastructure in two parts – soft
infrastructure and hard infrastructure. The hard infrastructure includes roads, bridges, ports,
airlines, railways etc., while the soft infrastructure includes education, health, tourism and
likewise.

As I have already written about the importance of education and employment, which are the
pillars of the soft infrastructure of any society; I would move to the other side of the coin i.e. hard
infrastructure, which is as important as the soft infrastructure. If the soft infrastructure is the
foundation, the hard infrastructure is building, none of them can sustain in the absence of other.
The road connectivity, electricity, railways etc are the basic amenities, which any business
needs for its development.
In a way it’s a loop, which needs a positive feedback or say a trigger from the demand side,
which can be developed at the rural level by providing them education and employment and
simultaneously developing the hard infrastructure to provide the businesses an easy
connectivity to these areas.

I would close my article by reiterating one most important point that Infrastructure development,
talking only in terms of hard infrastructure will lead us nowhere. We need to look in terms of a
self sustaining model, which can drive itself automatically, which needs no fuel to be added to it,
no external factor to push it through and this is what I will call the glorious Growth Story of India.
Anshul Gupta

Pgpm (I year) MDI Gurgaon

Pg09anshul_g@mdi.ac.in

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

Answer to the question quoted, can be given in the following terms: India is among the fastest to
recover from the global economic meltdown. Why? Because are we are a developing country,
having huge consumer population. And these consumers are enough hungry to give fuel to
economic accelerator. But how can we maintain that hunger? I think, only by delivering value
and volume, to the people. Consumers won’t be demanding, if they won’t get both of them. And
the key to delivering that, is, having robust infrastructure facility.

Riding on the revival of the economy and stock markets, the manufacturing sector is set to give
phenomenal results. A large number of industries have emerged globally competitive and these
are likely to witness substantial growth in the near future. These include pharmaceuticals,
automobiles, auto components and textiles. Even among the exporting sectors, many domestic
manufacturing industries are expected to do well owing to their cost advantage in the global
market, stated JP Morgan. The success of Indian exports has been in places where capital
requirements were reasonably low or there was a big domestic market. However, the positive
changes taking place in infrastructure are likely to lead to further pressure on the business of
smaller, sub-scale and inefficient companies. Interestingly, the downturn of the last few years
has also brought about a healthy change in the market.

Although huge fiscal deficit should not be the obstacle in making infrastructure spending
continue. India can’t achieve its goal without closing the “policy deficit” in infrastructure. It won’t
be easy, but there is no choice.

Our neighbor China, is a very good example to imitate; its growth over the decades is because
of its robust infrastructure facility, hence is able to keep up with the pace with which its economy
is expanding.

Government of India’s latest initiatives in increased infrastructure spending is a good harbinger.

We need have those pakka roads in our villages, electricity to bring people out of misery,
hospitals to save peoples life, schools to educated children, we need flyover to reduce traffic
hence improve efficiency if cities, and there is an unending list of needs. In the next 10 years;
India will become world most populated state, having the largest number of poor, illiterate,
malnutrition, and disease ridden people in the world. India’s middle class is growing with the
fastest rate in the world, hence demands for more products.

So, we can say that, its infrastructure which will lead the growth in the coming decade, as it has
lead in the past decade.
ANUPRIYA GUPTA
MDI PGHR 2009-11

pghr09anupriya_g@mdi.ac.in

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

Infrastructure of a nation can be broadly covered in terms of urban infrastructure, buildings,

parking spaces, pipelines, sewer and operation, maintenance of ROB (Railway Over Bridge),
FOB (Foot Over Bridge), flyovers and roads, ports, railways airports, electricity, communication
etc.

In the current economic scenario, where global demand has taken a hit, building infrastructure
can fuel domestic demand and thus help the economy. India cannot afford to rely on the GDP
contribution of services and IT/ITES industry alone. In the next ten years India will have to look
for other options to accommodate its growing unskilled labour. According to Indian Statistics
Bureau, 10,000 students graduate every year whereas around 14 million students pass their
high school examinations. This high difference in the supply and demand of unskilled workforce
can lead to wastage of highly productive young Indian whose average year currently is 23
years. So to tap the skills of the workforce, apart from sound education infrastructure is
required.

The development of one infrastructure parameter depends on the other. For example having a
robust road network is critical for airports, parking buildings and electricity. It also means better
connectivity for rural people thus bridging the gap between India and “Bharat”. Employing rural
workforce with schemes like NREGA in building infrastructure can raise the living standards in
rural India and can also handle the issue of urban migration. Currently Indian roads carry 85%
of the passenger traffic and 70% of the freight traffic. (Source: Road Infrastructure Summit).
This data shows that if Government increases it’s spending on infrastructure industries can
benefit from it. According to World Bank, over the five-year period 2007-12, c.Rs3.6 trillion
(c.US$88 billion) needs to be invested in roads of all categories: national highways, state roads
and rural roads. Metro in New Delhi has changed the face of Delhi and has enabled it to
successfully bid for the forthcoming Commonwealth Games. So, government spending is not
futile and helps in building up the face of the nation.
In March 2009 Indian Government allowed Infrastructure Finance Company Limited (IIFCL) to
raise the sum of Rs. 40,000 crore by using tax free bonds so that infrastructure projects can be
carried out. This shows the Government’s commitment towards providing an inclusive growth to
its citizens.
Parivesh Gupta & Jaideep Somani
PGP in International Management

MDI, Gurgaon

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

“One of the critical constraints which holds back our growth rate is really the quality of
infrastructure. If you compare infrastructure in India with infrastructure in East Asia . . . [our]
infrastructure is poorer, and that reflects the fact that we haven't invested nearly as much as we
should have in the past several years.” –

Deputy Chairman of India's Planning Commission - Montek Singh Ahluwalia

Infrastructure in general may be defined as the basic physical and organizational structure
needed for the operation of a society or an enterprise or services and facilities necessary for an
economy to function. These functions include roads, water supply, power grids,
telecommunication, airports, railways, water and sanitation and irrigation.

After the 1991 reforms, India set itself on a trajectory of rapid growth, but the rapid growth was
not accompanied by a similar rate of improvement in the infrastructure conditions of the country.
In fact, according to the World Bank’s Global Competitiveness report 2007-08, the biggest
hindrance to the Indian growth story was the abysmal condition of Infrastructure in the country.

According to the survey conducted jointly by global consulting major KPMG and Economist
Intelligence Unit, around 95 percent of Indian top executives feel infrastructure investment was
insufficient in the country to support the long-term growth of their organisations.

With the projection of a rosy Indian growth story, there have a been three prominent factors
which demand a simultaneous development of the Indian infrastructure – economic growth and
associated rise in the disposable Income, increased urbanization and rising global integration of
the Indian economy.

Infrastructure could play a major role in alleviating poverty of India. It would have a cyclic effect
– it would lead to an increase in the quality of life leading to an increase in the purchasing power
of the people. This in turn would help in increasing the consumption and hence, production.
Physical isolation is a major reason for poverty in the country. The major chunk of Indian
population does not have reliable access to social and economic services. This is particularly
true in the case of rural areas which are distant from roads and railways. An improvement in the
infrastructure would not only enable better services but would also help in lowering of transport
costs for accessing such services.

The Road Ahead:

All areas of infrastructure need to be taken up with equal sense of urgency.

Government targets US$1.5tn infra spend over next decade. The Planning Commission of India
recently impressed upon the infrastructure spends of US$500bn in the 11th plan (2008-12) and
US$1,000bn in the 12th plan (2013-17). Government is targeting to increase infrastructure
spend as percentage of GDP from 5% in FY07 to over 10% of GDP by 2017. Of the total
infrastructure spend of US$500bn in the 11th plan, government plans to invest S$100bn in the
rural areas. More than half of this spend (around US$55bn) is expected to be in irrigation
projects.

Investment in infrastructure by the government at the present will provide great benefits in
future. Not to mention the huge employment-generation capability of infrastructure investment; it
is an added advantage for the country. The government spending will also help deliver a
transport system capable of supporting the continued success of India’s economy in the global
market.
Piyush Jain

Management Development Institute,

Gurgaon

Will Infrastructure Spending Lead The Growth Story For India In The Next Ten Years?

For the past one decade, India was pacing quickly towards being a developed county with a
commendable growth rate of 7-9%. But now as we see the growth rate stooping, the million
dollar question arises – “How to lead the growth story for India in the coming decade?” On its
part, Government has given stimulus packages and the sixth pay commission was a welcome
move. But would it really help? What could be right move to ensure tangible benefits in near
future and sustainable long term development in the long term?

We know that India is a society that firmly believes in saving money for the bad times. In case of
increasing 6th pay commission; the major beneficiaries are government employees with
disposable income. As the income rises further, the savings rather than spending would
increase thus defeating the purpose of infusing money in the economic cycle. On the other
hand, if govt. focuses more on infrastructure development such as building roads, dams,
bridges, power-grids and telecommunications etc., it would ensure participation from all sectors
of the society. There would be a demand for skilled as well as unskilled workers and this bottom
of the pyramid which desperately needs money to fulfil its basic needs would spend and the
impact on growth would be very much evident soon.

As for the long run, in order for an economy to perform at its optimum potential, it is required to
move people, goods and information at a really fast pace. Building infrastructure would ensure
better tomorrow by improving the efficiency. By infusing money with the aim of increasing retail
consumption, the picture might seem gloomy in the short run but it would be like dealing with the
tip of the iceberg.

By creating infrastructure, cost of delivery in supply-chain would reduce and logistics turn-over
time would improve. This saving of cost and time would ultimately benefit every stake-holder in
the society. By investing in transportation, commutation time and cost would reduce. By having
better water supply facilities and sewers, health problems would considerably decrease. More
power grids and stronger transmission & distribution would mean fulfilment of energy
requirements. Better communication system in place would mean more friendly working
condition and a better lifestyle. All this infrastructure in place would mean huge foreign
investment, improved tourism and a strongly positive brand image to the world. Infrastructure
spending can definitely lead the way out. It would mean a more inclusive growth with all the
sections of the society involved in it leading the growth all the way.
Mayank Kumar

Management Development Institute,

Gurgaon

Tata Motors' $2.3 billion Jaguar Land Rover buy, which was arranged by JPMorgan.

Bharti Airtel's planned tie-up with South African mobile carrier MTN, worth an estimated $23
billion, is an exception in an outbound M&A market that has been relatively quiet even as
government-run Chinese companies backed by state banks continue to manage. In actual
terms, developmental expenditure has increased by Rs 27,000 crore for 2006-07, as compared
with a Rs 10,000 crore increase budgeted for this year over last year (total expenditure is up by
Rs 55,286 crore in 2006-07

Forty per cent of the total budgetary support for central and state plans of Rs 1,72,727 crore is
absorbed by his so-called ‘flagship’ schemes as compared to 32 per cent last year. The Bharat
Nirman programme, which aims to boost irrigation, rural water supply, roads, electrification and
communication, gets Rs 18,696 crore. The much-fabled National Rural Employment Guarantee
Programme, which guarantees 100 days of employment to any rural household and which was
seen by many fiscal fundamentalists as a giant sinkhole of funds, gets Rs 14,230 crore. The
National Rural Health Mission gets around Rs 8,207 crore.

Jawaharlal Nehru National Urban Renewal Mission programme for urban development has
received the largest increase in budget allocation (87 per cent), other major programmes that
have received substantial increase in allocations include National Highways Development
Programme for development of national highways (23 per cent), Pradhan Mantri Gram Sadak
Yojna for development of rural roads (59 per cent), Accelerated Power Development and
Reform Programme (60 per cent) and Rajiv Gandhi Graamin Vidyutikaran Yojna for rural
electrification (27 per cent). These increases in budget outlays give the much required
confidence to the market regarding the government’s commitment towards development of
infrastructure in India.

With the budget, the government’s task has only started, and there are various small and large
steps required at policy and institutional levels to see that targets of 9 per cent share of
infrastructure investment in GDP by 2014 and 9 per cent GDP growth rate for next FY are met.
The pro-deficit types have been making bizarre arguments to justify this excess of expenditure
over revenue. The first is that the US federal government will have a deficit of 13.7 per cent of
GDP. So what’s the big deal? The ‘big deal’ is that the US dollar still remains the world’s reserve
currency — the rupee isn’t. Moreover, according to the latest estimates of the US Congressional
Office of Budget, given President Bush’s and Obama’s deficits, the US will have to reduce
expenditure and increase tax collections by at least 50 per cent if it hopes to balance the budget
in 2020. That is a hard task.

The other argument is that most of the expenditure is directed to building infrastructure, which
will aid growth. That is clearly false. Only Rs 1,23,606 crore, or 12 per cent of total expenditure
is on account of capital outlays, and this includes Rs 54,824 crore on account of defence capital
expenditure, which doesn’t do much in terms of building roads, ports, electricity and railways.
Thus, 88 per cent of the ten lakh crore rupees is nothing but government consumption.

Interest payments account for Rs 2,25,511 crore; defence Rs 1,41,703 crore; and subsidies Rs
1,11,276 crore. These three alone siphon off 78 per cent of Centre’s net revenue. None build
infrastructure.