Infrastructure initiative

Written by The Financial Express | Updated: Dec 31 2007, 04:13am hrs
Infrastructure is the one issue that sends eyeballs rolling upwards in India, and 2007 proved no exception. Unfortunately. This, despite the fact that it was the central focus of various initiatives adopted by the UPA government right from the moment it assumed office in mid-2004 after its surprise election victory. Such was the emphasis that it even set up a committee on infrastructure, chaired by the prime minister, to ensure that lack of world class infrastructure would not hold India back. Since then, the countrys economic success has been spectacular, but infrastructural movement has been limited to just two segmentstelecom and aviation, where liberalised investment regimes have given private players a big boost, even if the policy muddle over telecom spectrum allocation did not quite get resolved during the year. Growth, nonetheless, was impressive.

The great big hope at the start of the year was public-private partnership (PPP) projects. While this major initiative has borne some results, the full impact of which is yet to be felt, questions of model optimisation, responsibility sharing and viability gap funding persisted. Yet, the numbers are promising. So far, as many as 212 PPP projects have been launched involving infrastructure investments of over Rs 1 lakh crore, with the bulk of it in roads (accounting for close to half the value of the projects). A third of the PPP investments were in seaports, while airports garnered a fifth, and railways and urban development received just a pittance. Other funding initiatives included the setting up of an inter-institutional group of development finance institutions and banks, to ensure speedy loan disbursements, and the launching of special purpose vehicles (SPVs), such as that of the India Infrastructure Finance Company Ltd (IIFCL), which has been able to provide loans of Rs 16,381 crore for projects worth around Rs 1.2 lakh crore in less than two years. The much-ballyhooed proposal to use Indias bulging foreign exchange reserves to fund infrastructure projects, via an overseas SPV that would issue bonds to the RBI and use the funds to finance projects in India, is yet to make significant headway.

Other major government schemes launched with great fanfare to bridge the infrastructure deficit in both urban and rural India, like the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the main vehicle to promote infrastructure in the urban sector, and Bharat Nirman, designed to ease infrastructure constraints in the rural sector, are yet to make their impact on the ground. Of particular distress is the slowdown in road building. The proportion of targets achieved under the National Highway Development Programme has steadily declined over the last three years, from around four-fifths to two-thirds, and then to under half. Year 2007 has been especially dismal. Only one-fourth of the target for widening of roads to four lanes has been achieved during the first half.

Yet, for all that, the biggest source of distress was developments in the power sector. The tantalisingly low tariff bid of Rs 1.19 per unit for the Sasan 4,000-mw project, the bright spark of the year, may have inspired excited talk of a clean break from the powerless past. But, overall, conditions during the year worsened. Electricity deficits shot up, with peak shortage levels steadily going up to 14.6% in the first seven months of this year, up from 11.7% in 2004-05. More than one-third of all generated power is still lost in transmission and distribution, five times the loss in China. And despite the increasing scarcity of coal, the government has taken only weak measures like liberalising investments in captive consumption, even while Indian companies scour the globe for new mines. Private players have access to only one-tenth of all coal mines in India, and the 745 applications received for 15 blocks earmarked for captive mining by coal companies a few months ago indicate both the starvation and desire to get down to business here.

In the aviation sector, proposals to upgrade infrastructure continue to be entangled in red tape, though only 15 of the 127 airports run by the Airports Authority of India made profits last year. In the case of seaports, too, efforts to increase private investment have made only limited headway. Though the government has laid down broad guidelines for bidding, selection criteria, license agreements, regulatory frameworks and terms and conditions for private sector participation, it has so far only been able to attract 16 projects worth an estimated Rs 4,300 crore. This is only a minuscule part of the total money needed for ports. And, finally, there is also the issue of time and cost overruns in public sector infrastructure projects. At last count, there were as many as 251 large projects involving almost Rs 20,000 crore that were faced with time and cost overruns. For a country that has such stark gaps in infrastructure, this is a downright shame.