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Is the Budget relevant to infrastructure?

March 17, 2008 10:02 IST

In the media-surcharged atmosphere surrounding the Budget, commentators and gurus are asked to comment on the impact of the budget on various sectors.  Of these, infrastructure features as a key sector where reactions are sought.

And this led me to ask a rather innocent question to Bidisha Ganguly -- the economist who handles CII's infrastructure secretariat, "How relevant is the Budget nowadays to the overall infrastructure sector?"  Bidisha, in her usual diligent style, did a quick dive into figures and content. Without too much difficulty, the conclusion emerged that on financial outlays, the budget is losing relevance for new projects in the sector, but on policy and direction-setting, it continues to be impactful.

To come straight to the point on outlays, the table shows that against the country's requirement of $100 million per annum (as per the 11th Five-Year Plan), the Union Budget is able to provide only about 5-6 per cent of the requirement in 2008-09. How does this 5-6 per cent come about?

An examination of Budget documents makes it clear very quickly that it is quite difficult to separate the project wheat from the developmental and administrative chaff in terms of outlays and allocations.

So assumptions have to be made.  And the assumption has been made that, overall, 33 per cent of the allocations find their way into real-time infrastructure project investments. Is this assumption defensible? Consider the following:

Now, let us train our sights on the Budget's role in setting out major policy initiatives and in direction-setting. Here, the government's record has been more impressive, as major initiatives have been undertaken either to focus the government's direct spending on infrastructure (for example, Bharat Nirman) or to incentivise spending by the private sector (for example, viability gap funding).

Here is a quick recap of the Union Budget's role in direction-setting across the last five years.

2004-05

2005-06

2006-07

2007-08

2008-09

As is evident, the Union Budget continues to be the annual platform from which new directions and ideas are unleashed on India. It may well be said that it is the policy tail that is increasingly wagging the infrastructure dog -- and maybe it is the right thing for the nation too!

The author is the Chairman of Feedback Ventures.  He is also the Co-Chairman of CII's National Council on Infrastructure. The views expressed are personal

Vinayak Chatterjee
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