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Increased spending for rural infrastructure in the interim budget has raised further question marks as existing funds remain unspent. This has seriously undermined the government’s efforts to boost the overall infrastructural development, particularly in the rural areas.

“The new schemes announced and additional money sanctioned for the rural development projects will take at least a year to fructify as most of these expenditures will have to be approved by project and the state governments have a big role in that. It is a long process. Even today, sanctioned money is lying unspent,” said, Dr AS Firoz, a Delhi-based senior economist. 

Government has increased its allocation for Bharat Nirman programme to Rs31,280 crore from Rs24,603 crore allocated last year. In fiscal 2009-10, it plans to spend Rs40,900 crore. The allocation to this programme has been increased by 26% during 2005-09.

But economists are sceptical about fast results with the new spending due to the government’s slow track record in earlier programmes. “Unlike the JNNURM project where private participation is significant, Bharat Nirman is largely a government project. In most of the projects, Centre only provides the fund but responsibility of implementation lies with the state governments,” said Ashish Shah, director advisory, KPMG.

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The progress report of Bharat Nirman programme reflects a sad story as many of the projects are running behind schedule due to state governments’ inability to spend allocated funds on time. However, with the provision for pumping huge funds into the rural infrastructure, some industry analysts also think this can give much needed fillip to the sluggish economy. “There may be a lag period but this will definitely have a positive impact on the demand for cement because the funds are meant for infrastructure,” said Sanjay Ladiwala, president, Cement Stockists & Dealers Association of Bombay.

Though demand for cement and other construction materials will increase, analysts say, steel may not see much hike in its demand. “I don’t think the spending on rural infrastructure and employment generating schemes will boost steel demand. It has only a marginal impact,” said Dr Firoz who is also the strategy consultant (steel and natural resources) with SNRSR. Growth of the steel industry is largely driven by the demand emanating from the construction sector, especially, the large industrial capacity build-ups, infrastructure, commercial housing and large residential housing projects. Rural infrastructure is very low in steel intensity, analysts noted.

Pawan Burde, senior analyst with Angel Broking Ltd who tracks steel industry very closely, thinks the demand will definitely grow but only in the long run. “Steel demand is inter-connected with  GDP growth.

The stimulus package and rural infrastructure spending will help but certainly not revive the steel industry. Also you can see the impact of new spending only after two-three years,” he added.

Ladiwala, however, said that the government has done the right thing by focusing more on the rural infrastructure and housing segment, given the slump in urban demand. “The demand for cement will increase because of greater emphasis on the infrastructure. In terms of rural demand, it depends on the types of projects. Roads will not require much cement but irrigation, housing and electricity components will need cement,” he added.

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