UGC NET COMMERCE July 2016(Paper II) Q3
- Option : D
- Explanation : Development of proper infrastructure is vital for economic growth of any country. Investors will like to put the capital only in those countries where there is developed infrastructure. Infrastructure consists of many things such as road, railway, port and harbour, airport, electricity, telecommuni-cation, water supply etc. Development of infrastructure is capital intensive and gestation period is high. At the same time return on capital in case of infrastructure projects is small as well as slow. Hence, investors are shy in investing capital in infrastructure projects unless some special incentives and privileges are provided.
Special features of infrastructure projects
(i) Large Capital requirement
(ii) High sunk cost. A large proportion of the cost has to be irrevocably committed upfront before the project becomes operative
(iii) Long gestation periods
(iv) Returns are slow to pass in
(v) Availability of foreign funds is poor
(vi) Sector is sensitive to political environment and policy changes
(vii) The services produced are non tradable. The excess services generated can not be stored or exported and deficiency in service can not be met with by imports except for certain exceptions.
No single solution applies to different projects as characteristics is different from sector to sector. What applies to road sector does not apply to railways and what applies to railways can not apply to telecommunications sector as the capital requirements are different and so is the method of revenue collection.
