Ensuring improved governance standards has emerged as the main challenge in meeting the country’s infrastructure shortages.
India is said to have the potential to become the world’s third largest economy within two decades. But it must move ahead boldly. Its infrastructure, its industrial sophistication, its management of cities and of a host of knowledge-promoting institutions must be transformed. It must improve the whole apparatus of skill development for its young population. It will need to increase current spending on higher education from 1.12 per cent of GDP to 1.5 per cent; and expenditure on health from less than 1 per cent of GDP to 3 per cent.
Although infrastructure investments are “lumpy”, gestation periods long, and the returns low and uncertain, they significantly help raise productivity. Other than lagging productivity, chronic under-investment has resulted in significant deterioration in the service quality.
The Twelfth Finance Commission observed, “It is far more important to ensure that assets already created are maintained than to go on undertaking commitments for creating more assets.” In the power sector, endemic shortages rose from 9.8 per cent in 2007-08 to 11.1 per cent in 2008-09, and aggregate technical and commercial losses remain as high as 32 per cent. New power generation schemes keep slipping; the Eleventh Plan achievement trails far below the targeted 78,700 Mw additional capacity.
The railways and roads dominate the country’s transport landscape. Within these two modes, two per cent of road length carries 40 per cent of all road traffic of the country, and one-sixth of the rail network, forming the golden quadrilateral and its diagonals, carries over two-thirds of all rail traffic. Indian Railways needs to first substantially scale up the productivity of its existing assets before harping on new lines and projects to be built at huge costs. From a distressing 30 per cent share that it commands of the country’s overall freight traffic, it must strive to have not less than 50 per cent and, similarly, to enhance its share of passenger traffic from just 10 per cent currently to at least 25 per cent. IR thus has capacity and productivity enhancement as its primary task.
With the fragmented character of the industry, road transport services in India are generally poor and logistics costs high. Clocking the world’s lowest average speeds, trucks in India are used for 60,000-100,000 km annually — less than a quarter of the average in developed countries. A master plan for 18,500 km of expressways based on “access control toll” needs to be executed urgently, in addition to the development of state highways and district roads. A large number of villages and habitations in rural areas still remain unconnected with quality roads.
The story in the port sector is no different: Indian ports have a lot to do to reach levels of efficiency and productivity comparable to those clocked by other ports in the region. Freight transportation from Indian ports to the US, for example, is one-third more expensive than from Bangkok or Singapore. As transport costs fall, physical geography matters less. But with economies of scale in production, economic geography matters more. Today, high transport costs and low connectivity levels are more detrimental to a country’s development than ever before.
In 2001, the population living in 5,161 urban agglomerations was about 285 million. It increased to almost 400 million in 7,935 towns in 2011, and is projected to exceed 600 million by 2030. The infrastructure in India’s towns is indeed poor. Sewage, water, sanitation, roads and housing are woefully inadequate. It is estimated that over the next 20 years a capital expenditure of about Rs 40 lakh crore (at 2009-10 prices) and Rs 20 lakh crore for operation and maintenance of new and old assets will be required. Currently, public transport accounts for less than 25 per cent of urban transport, emphasising the need for strengthening urban mass transit systems.
Private capital will need to play a much larger role in infrastructure than it has done so far. Infrastructure sector PPPs are expected to close at 34 per cent of the Eleventh Plan sectoral outlay, against the target of 30 per cent. Transport is the dominant PPP sector by both number of projects and investments, mainly due to the large number of road sector projects. Further efforts are needed to realign and restructure PPPs simultaneously with mainstreaming them in areas such as power transmission and distribution, water supply and sewerage, railways, and social sectors like health and education.
Effective governance has emerged as the main challenge for meeting the infrastructure deficit. While the government may play a moderate role in financing, it is required to put in place robust institutions for improved governance standards. It needs to ensure consistency and predictability of policies and its commitment to adhere to them over a period of time. Public investment in roads, ports, etc. affords the concessionaire a local monopoly, necessitating a suitable regulatory framework for consumer interests to be duly protected, as competition among suppliers would make for an effective mechanism towards achieving transparency and ensuring lowest-cost supply.
Inadequate infrastructure was recognised in the Eleventh Plan as a major constraint on growth. Total investment of Rs 20,54,205 crore in infrastructure is estimated to have increased to around 8 per cent of GDP during the Eleventh Plan, against Rs 919,225 crore (including Rs 225,220 crore from the private sector) during the Tenth Plan. The target for infrastructure outlay during the Twelfth Plan is set at Rs 40,99,240 crore — or 9.95 per cent of GDP — half of it accruing from the private sector, including an annual $30 billion in foreign direct investment (FDI) inflows. These astronomical sums confer upon the government an over-arching responsibility to ensure proper implementation and accountability.