Infrastructure areas open to private enterprise


Reforms resulted in even core/infrastructure sectors like power, oil, mining, telecom, road building, civil aviation and export processing zones have been opened up for the private sector. In the case of infrastructure, the post-reform years have actually witnessed a paradigm shift; monopoly of government /public sector has yielded place to private investment. The provision of such services is made for in a commercially viable manner.

Telecom: In telecom, the government opened up equipment manufacturing to the private sector initially. With the new telecom policy, NTP94, it opened up to them cellular and basic telecom services at the state level. With NTP 2000, it allowed the entry of private operators in basic telecom services in full measure. It also opened up the national (domestic) long distance (NLD) service. There is no restriction on the number of private operators providing NLD services. In short, private sector companies can now enter practically all of the spheres in telecom; they can also have foreign collaboration. No industrial license is now required to set up telecom manufacturing units. Projects with more than 51% foreign equity and higher technology fee are also to be accommodated through special approvals. More than 100 private sector firms have applied for basic service licenses.

By early 2001, a large number of private sector firms including Reliance, Shyam Telecom and Bharti, had got infrastructure provider (IP) license from the department of telecommunications (DoT). The IP license enables them to provide optical fiber network right of way towers and infrastructure for end-to-end connectivity all over the country. They are now laying cables in a few states, where they are operators of basic services. Most of these private players have plans to enter the national long distance (NLD) segment as well. The IP license which is free of cost enables them to set up the backbone network. And, a number of telecom companies have started building optical fiber based broadband backbone network all over the country.

Reliance is all set to become another BSNL. It has applied for license for basic telecom services in 17 states. It has invested Rs. 450 crores as license fee for the 17 states. It already holds the license for Gujarat. It is thus in a position to provide an all-India service in basic telecom. The only parts of India it has not shown interest in are Jammu and Kashmir, the North East and Andaman and Nicobar all rated as areas of low potential.

Mining: The National Mineral Policy, 1993, has opened the entire mining industry to private sector participation, except for uranium, coal and mineral oil. It has opened mining of 13 metals, including gold, diamond and platinum to the private sector.

Road building: Road building has become another new opportunity to the private sector. The government has allowed private sector to enter road building on BOT (Build, Operate and Transfer) basis. It has also allowed them to finance, construct, maintain and operate specific highways. Many express high ways, high-density corridors and bypasses have been identified for the private sector, e.g. Mumbai-Pune, Mumbai-Ahmedabad, Delhi-Jaipur. Work worth Rs. 14,000 crore was offered in the first bout. And renewal works provided an opportunity worth Rs. 2000crore.The National Highways Act is being amended to enable involvement of private entrepreneurs. The above listed roadways termed as expressways are now completed and are a part of the golden quadrilateral connecting Delhi-Mumbai-Chennai-Kolkata. Other sections on this quadrilateral are also completed by private enterprise.

The government also offered several incentives to the private sectors for attracting them in construction of roads. The firms were given the freedom to collect tolls and the freedom to fix the toll rates. The new ‘road policy’ will also assure a 16 % return on foreign investment, 20% on domestic investment, give tax holidays and concessions, and allow the private sector to develop commercial property along the proposed expressways. Though the government will not provide any guaranteed returns to the investors, the tolls would be fixed in a manner to assure returns. The firms are also allowed to raise 20% of the capital for the project by way of public issues and co-finance the project with foreign financial institutions. They are allowed to develop service and rest areas along the highways constructed by them.

Civil aviation: Aviation too has been opened up to the private sector in a big way. Initially, the government permitted private firms to function as air-taxi operators. As many as 17 companies were given permits for operating air-taxi services. Jet Airlines, East West, Damania, ModiLuft, and NEPC were among the private airlines to begin operations. In 1994-95 Air taxi operators (ATOs) private sector players in aviation were permitted to become full fledged airlines, offering commercial flights and competing with state owned Indian Airlines on all domestic route. After a shakeout, Jet and Sahara became regular aviation services, competing with Indian Airlines. Subsequently, the government decided to privatize Air India and Indian Airlines, the two public sector air carriers. The skies are now entirely privatized even for international routes. Jet Airways along with Indian Airlines and Air India are now operating regular foreign services. Air Deccan, Kingfisher and Go Airlines are other private organizations fast catching up the Indian skies and may very soon fly international routes.

The government has also permitted restructuring of the airports of the Airport Authority of India (AAI) through the long-term leasing route. Investing in airports in India has become more attractive, with the 2001- 02 budget announcing a 10-year tax holiday. The Bangalore airport project and the proposed Shamshabad international airport in Hyderabad are the two projects that will immediately benefits from the new proposal. The move is likely to make airports projects, which are basically long-gestation ones, more attractive for the private sector.

Ports: The first private port has become operational at Pipavav in Gujarat. The Australian private port company, Peninsular and Oriental, have started operating a private berth at Jawaharlal Nehru Port, Mumbai. Private sector firms have been invited for operating terminals at most of the existing ports and bids have been received for terminals at Kochi and Kandla ports. With the budget for 2001-02 providing tax incentives to long-term investors in infrastructure projects and a 10-year tax holiday on port/inland port projects, it’s now ‘bon voyage’ for the port sector. Any income gained by lending to the infrastructure sector is now exempt from tax. This concession will attract private/foreign funds, both debt and equity.

Defence production opened up:

More recently (in May 2001) the private sector has been allowed entry even into the defence industries. The private sector can now establish wholly-owned units for the production of defence items, subject only to the conditions that the units must get a license from the Ministry of Defence. They can also go in for foreign participation in the units up to 26%.

The governments which ever is coming to power irrespective of party affiliations are continuing the reforms and every yearly budgets are providing for more and more reform oriented plans so that India is competitive in world markets and emerge as a super economic power in this part of the world.