The draft Approach Paper to 12th Plan, 2012-17, has paid special attention to the infrastructure sector. The paper suggests investments in infrastructure–spread across electricity, roads and bridges, telecommunications, railways, irrigation, water supply and sanitation, ports, airports, storage and oil-gas pipelines?should go up from about 8% of the GDP in the base year (i.e. 2011-12) of the Plan to about 10% in 2016-17. This will come to a colossal investment of R45 lakh , or $1 trillion ,over the five-year period, nearly half of which will go into construction projects.
Mobilising such large resources in no easy task, given that savings and investment in the economy has been largely stagnant in some areas like household savings or even declining in areas like the corporate and public sectors. So raising the required resources would be possible only through larger public sector outlays and a substantial rise in private investments. The optimism on garnering larger private resources is based on the substantial progress on this front in the Eleventh Plan.
The paper says the total investment in infrastructure has increased from 5.7% of the GDP in the base year of the Eleventh Plan to around 8.0% in the last year of the Plan. According to the Planning Commission?s own estimates private and public-private partnership (PPP) investments during the Eleventh Plan accounted for a little over 30% of the total investment in infrastructure, and this share could probably be raised 50% in the 12th Plan.
However, the overall experience has been mixed. Though many critical projects have taken off at the Centre and states levels, and many are fully operational, the regulatory constraints and the lack of transparency could prevent a more substantial expansion on this front. At the same time, a reason for hope is the new guidelines for setting up infrastructure debt funds, which could help infrastructure companies to refinance short-term bank debt with long-term debt and leverage private investment in infrastructure through speedier financial closure of PPPs.
The recent experience in infrastructure projects indicate that many problems can pop up in the course of operation, but not enough attention has been paid to anticipate or rectify them. These failures can be overcome by ensuring that legal arrangements for PPPs clearly specify the terms of delivery of services, with mechanisms to enforce obligations and punish violations.
Higher investment in infrastructure is critical for sustaining the GDP growth rates and pushing forward the inclusive growth agenda, which will mean greater access to basic utilities for a substantial part of the population. Many of the projects in this sphere would not be fully financially viable, so the government would have to step up public investment, especially in the backward and remote areas, to improve connectivity and expand public services.
The experience so far is that transport is the dominant PPP sector in India both by the number of projects and investments, mainly because of road projects. But a lot more needs to be done to boost PPPs in other sectors like power transmission & distribution, water supply & sewerage and railways, where there is still a substantial resource shortfall.
In fact the Planning Commission’s list of successful PPP projects are a bit too few for an economy of India’s size. The list includes the Delhi, Mumbai, Hyderabad and Bengaluru airports; four ultra-mega power projects at Sasan, Mundra, Krishnapatnam and Tilaiya, container terminals at Mumbai, Chennai and Tuticorin ports; 15 concessions for operation of container trains; Jhajjar power transmission project in Haryana and the 298 national and state highway projects.
Adding to the imbalance is the uneven growth in infrastructure investments. Trends in infrastructure investments in the last few years indicate that while the pace of investment has been particularly buoyant in some sectors like telecommunications, oil & gas pipelines, it has fallen far short of targets in very important sectors like electricity, railways, roads and ports.
Constraints are not about resources alone. A major irritant is the supply of land, with land acquisition for infrastructure projects running into rough weather in many places. However, the new bill for land acquisition and rehabilitation will hopefully speed up the pace of infrastructure projects. A lot would depend on how the law finds an appropriate balance between protecting the landowner interests and the broader needs of the economy.
Moreover, there is also the issue of procedural hurdles. A long unresolved problem of the sector is the slow pace of implementation, partly on the poor governance standards in most states, especially in the poorer ones. Poor coordination across different agencies still lead to large delays and avoidable cost over-runs.
The approach paper has refreshingly identified improvement of ‘project management? capabilities as a priority area for both infrastructure and social sectors. Recognising that project management is a learnable capability that can be institutionalised, it calls for a nation-wide drive to improve project management as an integral part of the 12th Plan.
The other major focus area of the infrastructure sector is urban infrastructure, as the urban areas are expanding substantially. Census figures show the number of towns in India increased from 5,161 in 2001 to as many as 7,935 in 2011, most of it on account of the growth of ?census? towns, or agglomerations that grow in rural and peri-urban areas with densification of populations. Census towns grew by 3,894 when ?statutory? towns, or towns with municipalities or corporations, increased only by 242.
The commission estimates that raising investment in new urban infrastructure assets and maintaining existing assets will need a capital expenditure of about R40 lakh crore (at 2009-10 prices) and another about R20 lakh crore for operation & maintenance (O&M) over the next 20 years. This calls for a massive effort to attract private investment in all areas of urban infrastructure.
The broad thinking on this score should be done under an extended ?4P? framework?People-Private-Public Partnerships. This is because the experience the world over indicates that in urban renewal and management, the role of ?People? in design of projects and partnerships is crucial, much more so in large infrastructure projects such as highways, airports, and power plants. Therefore, the Planning Commission wants best practices and models for ?PPPP? be deployed for India?s urban management agenda to succeed. It also points out that such PPPP projects may become more viable if a subvention from property and other urban taxes is imaginatively used to meet any financial gap in the projects.