Infrastructure investment is very essential for India to achieve a higher GDP growth. Sharayu Daftary, President of the Mumbai-based Indian Merchants Chamber shares her views with Jayashree Jakhade of FE-Thinktank. Excerpts from the discussion:Investment in infrastructure is crucial to support a higher level of industrial growth. World Bank studies have shown that one per cent growth in infrastructure translates into a one per cent growth in the economy.
India has targeted an industrial growth of at least 10 per cent and a sustainable GDP growth of at least 7 per cent per annum. Therefore, it must increase its investment in the infrastructure sector.
The Rakesh Mohan committee has said that it is imperative to increase infrastructural investment from 5.5 per cent of GDP in the 1990s to 7 per cent by 2000-01 and 8 per cent by 2005-06. India’s infrastructure is grossly inadequate and has been holding up a more rapid economic growth. The situation has worsened since the Rakesh Mohan committee submitted its report.The following are the committee’s recommendations on selected sectors :-
Power
India needs to add 60,000 MW generation capacity by 2002, with private producers contributing half of this capacity. During the Eighth Plan (1992-97), the country could set up new capacity of only 18,000 MW. And, new capacity of only 1,070 MW was created by independent power producers (IPPs) in the seven years since the economic reforms began.
This bleak picture was largely because of the misplaced government focus on improving generation through IPPs, on expectations that they would sell power to the state electricity boards (SEBs), most of which are financially unviable because of their low average tariffs, poor revenue collection and high distribution losses.
Private investment can flow into the power sector only after the SEBs are made financially viable. And the key to turning around SEBs is by reforming the distribution channel. Towards this end, the committee has recommended:-
Shift focus of reforms from generation to distribution.Set up state electricity regulatory commission (SERCs)Restructure the SEBs: (a) In phase-I, corporatise the SEBs and separate generation from transmission and distribution (T&D) functions; (b) In phase-II, privatise the unbundled companies.Introduce competition by allowing large users buy directly from generating companies.Set up a power trading corporation in every state.Reduce T&D losses and theft, thus saving Rs 8,000 crore per annum.Develop a national transmission network through the Powergrid Corporation.Communication
India’s tele-density of two fixed lines per 100 persons is one-fifth of the world average of 10. Cellular telephony coverage is similarly abysmal, at 0.1 per cent compared to 2 per cent in Malayasia.
If enough supply is ensured, demand for basic telephone services can rise to 31 million lines by 2001 and 64 million by 2006; and demand for cellular telephones could rise to 2 million by 2001, and to 5 million lines by 2006. Improved communications are also important to achieve social objectives like distance education and tele-medicine in rural and remote areas. Convergence of the telecom and digital technologies have now enabled us to use the same infrastructure to carry both data and voice. The government’s policy on ISPs will help India leapfrog into the cutting edge of convergent technology, if the policy removes asymmetry between the ISPs and telecom operators, particularly with regard to high licence fees charged to the latter and none to the former.
Taking all this into consideration, the committee has recommended:-
Evolve an integrated communications policy addressing all the telecom services such as telephony, Internet, cable TV, etc.Permit competition.Allow free and unrestricted entry to all services.Evolve a spectrum policy for all wireless applications.Extend the total spectrum available to telecom operators.Entrust Trai with the task of allocating spectrum in a transparent manner.Modify the licence regime from a flat fee to a service tax-based approach.Ensure a level playing field among all operators, including the basic and ISPs.Roads
Indian roads are facing a severe capacity strain as the annual growth of less than 5 per cent in road length is lower than half the traffic growth rate of more than 10 per cent. What is worse, the national and state highways, which are just 10 per cent of the nation’s roads, but carry 75 per cent of all the traffic, have grown at an even lower rate. A reason for slow growth in road capacity is that access to funds is restricted to inadequate budgetary allocations. The Rakesh Mohan committee estimated a need for Rs 90,000 crore for national and state highways over 1996-2006. However, total expenditure (centre and states) in the Eighth Plan period (1992-97) was only around Rs 13,000 crore.
The government must continue to play a dominant role in this sector since most road projects have low financial returns. Their viability depends on externalities such as all-round economic development of a region. However, in projects which are financially viable, private sector participation is feasible.
Here are the group’s recommendations to boost the road sector:-
Shift focus from providing accessibility to enhancing mobility.Achieve this by four-laning / six-laning the golden quadrilateral.Build a new expressway network; a long-term objective over a 10-15 year time frame.Clearly segregate the roles of policy maker, regulator and developer.Make NHAI the sole regulatory and facilitating agency at the centre.States must set up regulatory authorities along the same lines as the NHAI to regulate state highways and other roads.Implement projects through SPVs.Create separate companies.Allow provident funds and insurance companies to make 15 to 20 year investment in the road sector.Increase the dedicated funds for road development through a Re.1 surcharge on diesel.Ports
India’s 11 major ports handle 227 million tonnes of cargo. This is projected to jump to 400 million tonnes by 2000-01 and 650 million tonnes by 2005-06.
About Rs 25,000 crore will be required to meet the expected increase in demand. But the plan allocation for ports was only Rs 4,240 crore between 1990-97.
India’s ports need to become far more efficient. The average ship turnaround time for Indian ports is seven days; but for Singapore it is 6 to 8 hours. The number of containers handled per ship per hour ranges between 7 to 15 at Indian ports; but the comparable figure for Colombo is 25, and for Singapore 30.
The following are the group’s recommendations for the development of ports:
Set up a clear policy making and regulatory structure.Clearly segregate the roles of the policy maker, the regulator and the operators.Make the Tariff Authority for Major Ports (TAMP) the sole regulatory agency for all major ports.Reorganise the Port Trusts; and corporatise major ports over the next 3 years.Convert all major ports to Landlord Ports by 2005.Hand over port services to the private sector.Make labour reforms mandatory at all major ports.The two principles
The group’s report has laid down the following two principles for making the infrastructure sector more viable: One, infrastructure services must be offered in the most efficient, low-cost manner to best meet the needs of the community it serves. Two, the user must pay the actual charge of the infrastructure services based on a reasonable return on investment.
New Delhi Action Plan
Under the New Delhi Action Plan (1997-2006) on infrastructure development in Asia and the Pacific, a business plan was prepared providing for establishment and launching of the Infrastructure Development Finance Corporation (IDFC) and its initial products. The business plan laid down the mission of IDFC and its role in the Indian market, products it would offer, risks associated with these products, funding of the organisation, roles and functions within the organisation, competitive advantages and a strategy for achieving the mission of the corporation.
The IDFC’s short-term goal (first year of its operation) included providing value addition in the existing infrastructure finance market and promoting the Indian Government’s efforts to improve the country’s infrastructure by bringing two current pipeline projects to financial close.
IDFC’s medium to long-term goals included completion of the first successful securitisation and sale of an infrastructure financing within five years; and elimination of dependence on government concessions and support after five years.The magnitude of infrastructure financing required, according to The India Infrastructure Report, is considerable. Gross domestic investment (GDI) in infrastructure is expected to increase from 5.5 per cent of the GDP in 1995-96 to about 7 per cent in 2000-01 and 8 per cent in 2005-06. Infrastructure investment will account for 22 to 25 per cent of the GDI, rising from about Rs 60,000 crore in 1995-96 to Rs 1,07,000 crore in 2000-01; Rs 1,80,000 crore in 2005-06; Rs 4,30,000 crore in the next five years, and Rs 7,40,000 crore in the subsequent five years in infrastructure.