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Private Enterprise In Infrastructure

In the wake of crumbling infrastructure, it becomes extremely important for the government to make investment in infrastructure an attractive option for the private enterprises.

By Anubhav Srivastava

November 14, 2008

Though infrastructure creation in India has remained largely in the domain of the government sector, there is an urgent need to involve private sector participation in it. Experience in the past has shown that in a vast country like India, the demand for infrastructure has always outpaced supply. Apart from that, due to the corruption and mismanagement in the government sector, the infrastructure generated is poor in terms of quality. It is not unusual to see frequent power cuts, badly maintained roads and shortage of drinking water in even the most developed cities in India. This poses a serious question on the sustainability of the economic growth of the country. There is an urgent need to promote public-private partnership in infrastructure development so that there is a better management of infrastructure.

The government of India has taken a number of steps to promote private sector participation in infrastructure development. The Infrastructure Development Finance Company has been set-up with a corpus of Rs 50 billion, tax holidays have been announced for the companies investing in infrastructure and increased tax rebate limits for investment in shares and debentures offered by infrastructure companies.


The government has also approved foreign equity participation upto 74 per cent in some key infrastructure industries. However these measures have not proved to be very effective as infrastructure investment activities have a long gestation period. Also adequate capital domestic capital markets, which can make funds available for infrastructure projects have not been developed in the country.


Thus it becomes extremely important for the government to make investment in infrastructure an attractive option for the private enterprises. However the government cannot overlook the needs of the marginalised sections of the society and its other social sector obligations. It would be a good idea to give private sector 100 per cent tax rebates on company tax and the other taxes it gives to the government. The money could be used more efficiently by private sector companies if they invest it directly in infrastructure projects rather than handing it over to the government where administrative costs and corruption ensures that a large part of it is wasted.


The monitoring of infrastructure projects should be left to the local governing bodies so that there is active participation of the general public as well. The government should restrict itself to the role of the facilitator. It should ensure that there is an efficient and timely management of issues like relocation of affected parties of any infrastructure projects and environment clearances.


The author is Editor, Policy Proposals For India. 

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