Along with Piyush Goyal, the work on expanding road, railway and river networks will help boost GDP growth via increased productivity
Given the various constraints the economy is facing right now, from slowing consumption expenditure to a weak pickup in investments, it is not surprising most analysts are sceptical about India’s immediate growth prospects; the slowing of lending by NBFCs due to the IL&FS crisis will only exacerbate matters. But what is heartening is the fact that the economy will get a big productivity boost due to the dramatic improvement in the country’s infrastructure over the last four years, though the exact timing of when this will show up in the GDP data is as yet unclear.
In the case of roads, for instance, Nitin Gadkari has more than doubled the rollout from the time he took over. In 2013-14, a total of 4,260 km of road networks were built and this rose to 9,829 km in 2017-18 and the 2018-19 target is 11,000 km. If this target is achieved, that means the per day road construction will rise 2.6 times, from 11.6 km in 2013-14 to 30.1 km in 2018-19. Along with the fact that, with the rollout of GST, since trucks no longer have to stop at each state border, this means there will be a sharp increase in the speed at which trucks travel across the country. Eventually, in terms of productivity, the impact will be seen in the lowering of transport costs and, with lead times reduced, this will improve the productivity of local manufactured products.
In the case of the Railways, Piyush Goyal—and before him, Suresh Prabhu—has been able to increase annual capex by around 2.3 times, from Rs 2.3 lakh crore during the last five years of the UPA (see graphic) to around Rs 5.3 lakh crore in 2014-19 (this includes the budget estimates for 2018-19). As a result of this increased allocation from the government’s budget, while the railways commissioned 4.1 km per day of track—this includes laying of new tracks, doubling of existing ones—in the UPA period, this rose to 6.53 km per day in 2014-18; electrification of lines has risen more than six times between 2013-14 and 2017-18.
An even more dramatic increase in productivity will come when 2,822 km of the two dedicated freight corridors (DFC) are complete by March 2020, though around 777 km are expected to be ready for operation by March 2019. Once the DFCs are operational, this will allow, for instance, double-stacked trains (on the western corridor) so as to carry double the amount of cargo and, thanks to not having to wait for passenger trains, the average speed will increase from the present 26 kmph to around 65 kmph. One freight train can carry roughly 1,300 truckloads of freight and, together, the corridors can run 120 trains every day. It is not clear how much freight costs will come down by—the capex of the corridors will have to be factored into the freight rates—but there will be considerable savings due to faster turnaround times. Interestingly, the DFC is a critical component of India’s Paris strategy to reduce the carbon-intensity of the economy.
Of even greater consequence is the plan—also under Gadkari—to develop India’s waterways as a third means of transportation. Since no land has to be acquired or roads/tracks to be built, it is obvious it is much cheaper. According to a study by RITES in 2014, transporting goods by water costs roughly 40% that of moving it by roads (see graphic). The eventual plan, to develop 111 waterways of around 20,300 km length, will take decades, but the good news is the progress already being made under Gadkari.
On Monday, prime minister Narendra Modi received India’s first container vessel that sailed from Kolkata on 30th October to Varanasi—the PM’s Lok Sabha constituency—and carried 16 containers (equal to 16 truckloads) of food and snacks; the container ship was to return to Kolkata with fertilisers from IFFCO. As part of this, Modi dedicated a newly-constructed multimodal transport terminal that was constructed to facilitate the transportation. This particular stretch of the project, a 1,390-km stretch, is to cost Rs 5,370 crore—to be split between the government and the World Bank—and comprises three multimodal terminals (Varanasi, Sahibganj and Haldia) and five roll-on-roll-off terminals as well.
How much of a productivity surge is not clear, nor is the timing, but a good way to examine the impact is to see how the introduction of private telephony in the late 1990s contributed to GDP growth in the 2000s. The transport, storage, and communications sector saw its share of GDP rise from less than 4% in 1960-61 to over 6% in 1990-91, and then a sharp rise to nearly 11.5% in 2006-07. The real jump, Crisil analysis showed, was in communication services whose share of GDP rose from 0.7% in 1991 to 4.9% in 2006-07 and its contribution to GDP growth rose from just under 1% in 1990-91 to over 14% in 2006-07.
Add to this the impact of the telecom revolution that got another shot in the arm from the introduction of faster browsing with 4G networks, and it is reasonably clear India’s GDP will get a big productivity boost over the medium term.