India has a huge infrastructure problem and the solution so far appears to be to throw more money at the problem, without much effort to fix the core issues. A McKinsey analysis suggests India could lose up to around 10 per cent of GDP in the year 2017-18 due to shortage of infrastructure. While this is not a startling result, what is worrying is that the quality of expenditure has gone down with more money being spent. So, in the power sector, actual expenditures have fallen from 75 per cent of those planned in the 9th Plan period to a mere 58 per cent in the 10th one — roughly speaking, the 9th Plan was the NDA period and the 10th Plan the UPA’s first term.
In Railways, given Lalu Prasad’s reputation as an efficient minister, not surprisingly, the efficiency of expenditure rose from 94 per cent in the 9th Plan to 115 per cent in the 10th Plan. In the first two years of the 11th Plan, McKinsey points out, the shortage in projects awarded in the ports and power sector has been around 30 per cent of that planned — in the roads sector, just 10-15 per cent of planned projects were awarded. Add to this another problem, that of a financing shortage of around $150-190 billion (that’s a third of the total requirements in the 11th Plan period) and India has a huge problem – this has not mattered so far as the progress in infrastructure projects has been very slow but will begin to bite once more projects come up.
While the flow of funds into infrastructure has been smaller than what was planned for and very much lower than what the country needs to sustain a growth rate of 8%, the inability and unwillingness of users to pay an economic price for services is going to severely constrain this sector.
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