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Finmin wants transparency in road project auctions

New Delhi: Taking a bitter lesson from the way the second generation (2G) spectrum was handed out, the finance ministry today suggested a transparent auction system for awarding road projects to private developers with the government following a hands-off approach, reports PTI.

After facing flak on the 2G spectrum allocation in 2008, the government this year resorted to a transparent and hands-off auction system for the third generation (3G) radio waves allocations resulting in a huge collection of Rs1.06 lakh crore to the exchequer against the projections of Rs35,000 crore.

In the mid-year analysis of the economy, the ministry said that during the first half of the current financial year only 691 km of roads have been completed against a target of 2,500 km for the year.

Contracts and concessions for only 3,051 km have been awarded against the annual target of 8,724 km, it said.

Expressing concern over poor performance of contractors, the review presented in Parliament said some of the problems can be overcome "if projects are awarded on the basis of a transparent and hands-off auction system."

It said in order to make the tendering process in road projects more effective, there is a need to put in place a transparent, well-designed system of auction whereby private developers are made to properly compete with one another with no involvement of the government.

The document said if the private developers are made to properly compete with one another with no involvement of the government, this would lead to the contractors offering projects on most cost effective terms.

"Everything here depends on design of the auction system.

If this is well-designed, the implementing agencies should be able to find developers who will take the projects with internal rates of returns as low as 12%, 13% or 14%," it said.

It identified delays in land acquisition and forest clearances as major stumbling blocks in road construction.

Road transport minister Kamal Nath who had set a target of building 20 km of highways a day has run into problems with the environment ministry and also the Planning Commission.

While the Planning Commission had described his targets as over-ambitious, the environment ministry has put on hold several of the projects including the road near Pench Tiger Reserve in Madhya Pradesh.

There have also been differences between the road transport ministry and the Planning Commission over the model concessionaire agreements.

Termination of contracts often result in long-drawn litigation and delays.

The finance ministry in the Economic Survey earlier had projected a growth rate of 8.5% with variation of 0.25% on either side.

"Now why we have shifted the goal-post from 0.25% to 0.35%, one of the reasons is there have been certain uncertainties particularly, recovery of Euro. And the Euro has relevance both from viewpoint of foreign direct investment FDI, investment and also from external trade, particularly export.

"A sizable percentage of Indian exports are destined towards Europe. Therefore, the recovery rather rapid and robust recovery of Euro is important from India's point of view," Mr Mukherjee said.

On deepening of reforms, the finance ministry has underlined the need for further fiscal consolidation and steps to deal with external capital flows "which are posing some adjustment challenges" in the economy.

The surge in capital flows, it said, has raised the question of domestic absorptive capacity which could lead to "over heating" of the economy.

However, with current account deficit of 2.9% in 2009-10 the capital flows at 4.1% of the GDP have not been a "matter of concern", the analysis said.

The analysis called for improvement in infrastructure and core industries, universalisation of elementary education and issues concerning climate change as move to deepen and strengthen the economic reforms to sustain high growth levels.

As regards the fiscal deficit, the analysis said, "The government is fully committed to gradual reduction in fiscal deficit and accordingly fiscal deficit for 2010-11 will not exceed 5.5% of the GDP".

The government in the budget proposed to reduce the fiscal deficit from 6.6% in 2009-10 to 5.5% in the current fiscal.


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