Critical need to improve infrastructure sector to boost growth

Globally, adequate and efficient infrastructure is critical for industrial growth and economic prosperity. Developed economies, such as the US and countries in Europe are now grappling with how to repair/replace worn-out infrastructure with limited funding.

Governments the world over are focusing on the public/private partnership model to finance and build infrastructure initiatives. Institutional investors are looking at this sector in terms of future returns and inflation-hedging potential. 

In developing countries, strategically planned and executed investments in the infrastructure sector can help improve logistics and connectivity, equalise opportunities and provide the wherewithal to compete in a global marketplace. But economic and political conditions have a strong bearing on effective infrastructure investments. In an increasingly connected world, India's infrastructure sector is impacted by downswings in other countries as it reins in international funding. 

India's economic growth is bogged down by multiple issues, but the infrastructure logjam is perhaps the key constraint. Recent debates and conferences highlight that the infrastructure sector, which encompasses the gamut from transport, buildings, water and wastewater, energy etc is getting choked due to absence of integrated planning and logistical bottlenecks. 

Rapid urbanisation for employment and better standard of living puts tremendous strain on the infrastructure. These challenges include: providing basic facilities such as potable water, power, etc; building mass transport systems; overhauling existing infrastructure; and perhaps most important - timely completion of projects.  According to estimates, by 2030 about 40 per cent (600 million) of the country's population will be in urban areas. Evidently, infrastructure delivery in India is hugely affected by fuel supply to the power sector. 

Panelists at the National Infrastructure Summit 2013 concurred that while alternative sources of energy are being considered and recommended, coal would remain the mainstay of India's energy source. In this sector, environmental clearances were the common grouse but infrastructural constraints and logistical bottlenecks emerged as the primary challenge in developing incremental capacity. The total output of coal in 2012-13 is 557 million tonne and coal imports 135 mt.

In the 11th Five-Year Plan (2007- 2012), capacity was ramped up to 56,000 mw, of which 76 per cent was thermal capacity. Since then capacity addition on an annual basis was more than during previous Five-Year Plan tenures. Coal transportation is another challenge as the evacuation logistics are inadequate. With the right logistics, production in each coal block can reach 100 mt incremental capacity within three years.  Substantiating this point is the fact that 300 mt of additional supply potential is stuck due to the lack of three rail corridors in Jharkhand, Odisha, and Chhattisgarh. 

Improving connectivity

India is about sheer volumes - both in terms of population and aspirational demands. Every year, 14 million vehicles get added. Although India has one of the world's densest road networks - 1.42 km per of land compared to 0.66 km for the US and 0.43 km for China - the number of multi-lane highways is rather low. The decade-old underground metro system in New Delhi is also approaching overcapacity. For smooth transition of goods and services it is vital to have efficient road and rail networks. 

The key challenges of the railway sector are: Inability to add to the existing railways network. Since 1947 merely 10,464 km has been added whereas, China added 20,000 km in the last five years. High freight rates are forcing commodities to shift to road transport. Share in freight movement is only 30 per cent today (post-Independence it was 90 per cent). Reluctance to raise passenger fares has resulted in operational losses. Losses in 2013-14 from passenger operations amounted close to $4 billion.

The cost to build roads and transit systems to manage a huge population is significant, but it has to be done in a comprehensive manner through long-term vision and planning. The Government has allocated $1 trillion in the 12th Five-Year Plan (2012-2017) for infrastructure development - focus will be on more private participation to build new roads. Statistics reveal that out of 564 infrastructure projects, over 40 per cent have been delayed.

According to the Department of Industrial Policy and Promotion (DIPP), the air transport (including air freight) in India has attracted FDI worth $456.84 million from April 2000 to July 2013. In 2012-2013 total domestic passengers were above 65 million.

Although statistics show a marginal improvement, this sector is grounded by higher fuel prices; the depreciating value of the rupee is also affecting airlines as 70-80 percent of costs (aircraft leases, fuel) are dollar determined. High airport rates in Mumbai and Delhi have led economy airlines such as Air Asia to withdraw flights from these airports. In the first quarter of 2013-14, India’s 12 big ports, which account for about 58 per cent of the total cargo, shipped through the country’s ports handled 137 mt of goods. Present port capacity stands at 750 mt and traffic around 550 mt, which shows sub-optimal efficiency. 

These are what need to be done to improve the port sector: connectivity with better road and railway systems; expediting of environmental and security clearances; encourage investments; improve efficiencies and reduce the turnaround (about 4.2 days) and pre-berthing detention time (about 12 hours); mechanisation for faster cargo handling and reduction of labor costs; and provide a level field for private operators with regularised tariffs.

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