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State of infrastructure in India

  • Category
    Economy
  • Published
    18th Mar, 2020

Recently the government had unveiled a national infrastructure plan, planning to invest about ?102 lakh crore in the infrastructure sector in the next five years to achieve the GDP target of $5 trillion by 2024-25

Context

Recently the government had unveiled a national infrastructure plan, planning to invest about ?102 lakh crore in the infrastructure sector in the next five years to achieve the GDP target of $5 trillion by 2024-25

Background:

  • The government recently announced a big ?1.02 trillion infrastructure spending plan for the next five years, from 2019-20 to 2024-25.
  • The National Infrastructure Pipeline (NIP) captures the infrastructure vision of the country for the period FY20-25 and is the first-ever such exercise undertaken.
    • To achieve the vision of making India a $5 trillion economy by 2024-25, India needs to spend about $1.4 trillion over these years on infrastructure.
  • Objectives: NIP is expected to enable well-prepared infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive.
    • NIP intends to facilitate supply-side interventions in infrastructure development to boost short-term as well as potential GDP growth.
    • Improved infrastructure capacities will also drive the competitiveness of the Indian economy.
  • Scope of the project: The infrastructure investment is distributed between Energy (24 percent), Roads (19 percent), Urban (16 percent), and Railways (13 percent), amounting to over 70 percent of the total projected capital expenditure.
    • Remaining 30 percent will go into irrigation, agriculture, rural and social infrastructure. 
  • Status of the project: Around 42% of NIP projects are now under implementation while 31% are at the conceptualisation stage.
    • It is estimated that India would need to spend $4.5 trillion on infrastructure by 2030 to sustain its growth rate.

Importance of infrastructure development

  • Necessary for growth: It is well-accepted that investment in infrastructure is necessary for growth. Provision of adequate infrastructure is essential for growth and for making growth inclusive.
  • Development of economy: It can solve problems of general poverty, unemployment, backwardness, low production, low productivity and low standard of living etc.
  • Following are the reasons how investment in infrastructure is necessary for growth:
    • Power shortages lead to dependence on expensive captive power, which in turn impels high costs and lack of competitiveness for the economy.
    • Inadequate transport infrastructure leads to bottlenecks; both in the supply of raw materials as well as the movement of finished goods to the marketplace.
    • The price that farmers get for their produce is depressed if there is no connectivity through good quality rural roads, which in turn keeps rural incomes low, negating the fruits of high overall growth performance.

Status of Road Sector

  • Importance of Road Network in the Country: A good road network is an essential requirement for the rapid growth of the economy. Roads provide connectivity to remote areas, open up backward regions and facilitate access to markets, trade and investment.
  • Multi-modal transport network: Roads should not be looked at in isolation but as part of an integrated multi-modal transport system, which provides crucial links with airports, railway stations, ports and other logistical hubs.
  • High share in Gross Value Added (GVA): Road transport is the dominant mode of transportation in terms of its contribution GVA and traffic share.
    • Share of the transport sector in GVA for 2017-18 was about 4.77 per cent of which share of road transport was 3.06 per cent. 

Status of Railways Sector

  • Scope of railways: Indian Railways (IR) with over 68,000 route km is the third-largest network in the world under single management. IR is currently the world’s largest passenger carrier and 4th largest freight carrier. 
  • Safety and Cleanliness are accorded the highest priority by Indian Railways. Initiatives around railway cleanliness include special cleanliness campaigns under Swachh Bharat Abhiyan (SBA) - Swachh Rail, Swachh Bharat.
    • There is a need for more progress towards the safety end. 
  • Modernization and Privatisation: A dedicated SPV has been set up to carry out modernization of railway stations on PPP mode. Another initiative for modernisation of IR is Adarsh Station Scheme. 
    • There are ongoing efforts to privatise the railways. 

Status of Civil Aviation Sector

  • Scope of the market: India is the third-largest domestic market for civil aviation in the world, after China. Indian civil aviation sector is resilient.
  • Capacity utilization is being augmented by way of automation at airports. A total of 43 airports have been operationalized since the scheme for operationalizing un-served airports (Udan). Following are a few developments in the field: 
    • On airport connectivity, India stood first along with 7 others (USA, China, Japan, UK, etc.) in the Global Competitiveness Report 2019 of the World Economic Forum.

Status of Shipping Sector

  • Scope of the sector: Around 95 per cent of India’s trade by volume and 68 per cent in terms of value is transported by sea.
  • Problems in the sector: India’s shipping tonnage was low (1.92 lakh Gross Tonnage (GT)) on the eve of independence. It gradually increased thereafter but remained stagnant at around 70 lakh GT beginning of 2004-05.
    • Despite one of the largest merchant shipping fleet among developing countries, India’s share in total world deadweight tonnage (DWT) is only 0.9 per cent as on January 1, 2019.
    • The existing Indian fleet is also ageing.
  • Tonnage tax regime was introduced in 2004-05 that boosted the industry. However, there are still shadows of negative after-effects of the global economic downturn on the industry.

Status of the Telecom Sector 

  • Scope of the market: Total telephone connections in India grew by 18.8 per cent in 2014-19. Urban areas have a high number of connections. Wireless telephony now constitutes 98.27 per cent of all subscriptions whereas the share of landline telephones now stands at only 1.73 per cent.
    • The overall teledensity in India stands at 90.45 per cent; rural being 57.35 per cent and urban being 160.71 per cent at the end of September 2019.
    • The private sector dominates with a share of 88.81 per cent.
    • Internet and broadband: Internet and broadband penetration in India has kept a rapid pace. Total broadband connections increased by about ten times in 2014-19
  • Competition in the sector: There are 4 major players - 3 in the private sector and BSNL & MTNL in the public sector, operating in mutually exclusive zones.  Since 2016, the sector has witnessed substantial competition and price-cutting by the Telecom Service Providers (TSPs) creating financial stress in the sector. While some operators filed for bankruptcy, others have merged, in their quest to improve viability.
  • Revival plans: BSNL and MTNL are affected by the tariff war that has impacted their cash flow resulting in mounting losses. Government’s revival plan of these PSUs consist of: 
    • Reduction of staff cost through the Voluntary Retirement Scheme.
    • Allotment of the 4G spectrum.
    • Asset monetization of land/building, tower and fibre assets of BSNL/MTNL.
    • Debt restructuring through sovereign guarantee bonds.
    • ‘In-principle’ approval for the merger of BSNL and MTNL.

Status of Telecom Infrastructure and Connectivity 

  • Bharat Net Programme: Providing broadband connectivity to all the 2.5 lakh Gram Panchayats (GPs) in the country, in order to meet the goal of developing broadband highways as part of Digital India campaign. Following are a few project details:
    • Optimal mix of optical fibre, radio and satellite media
    • Public Wi-Fi Access/hotspots
    • Project for Left Wing Extremism (LWE) Areas and North East Region

Status of Petroleum and Natural Gas

  • Scope of the market: India is the third-largest energy consumer in the world after USA and China. With a share of 5.8 per cent of the world’s primary energy consumption, India’s energy requirement is fulfilled primarily by Coal, Crude Oil, Renewable Energy and Natural Gas.
  • Performance in oil production: India’s oil production is one of the lowest among major economies of the world and has been declining over some time. There has been a decline in both onshore and offshore domestic crude oil production.
    • Reduction in crude oil production may be attributed to a natural decline in ageing and matured fields and no major discoveries. 
    • There is a need to augment refining capacity to meet the growing demand for petroleum fuels and petrochemicals. 
  • Performance in natural gas production: Production of natural gas is dominated by PSUs, with its share increase over the period. There was a declining trend in domestic production of natural gas till 2016-17 which was arrested in 2017-18. 
  • Government reforms include; Simplified fiscal and contractual terms; Incentivizing gas production through marketing and pricing freedom; Induction of latest technology and capital; More functional freedom to National Oil Companies for collaboration; Private sector participation. 

Status of the Power sector

  • Progress in the power sector: World Economic Forum (WEF) commended India for its fast progress towards universal electrification. 
  • This was possible due to strong political commitment, a stable policy regime, use of grid expansion, and decentralized generation sources, and a supportive environment for investment in infrastructure. Electricity supply in the majority of states has increased. 
  • Sector-wise distribution: Fuel-wise and sector-wise distribution show that thermal power accounts for about 63 per cent of total installed capacity and roughly half of the generation capacity is in the private sector.
  • Initiatives: Access to electricity is necessary for making growth inclusive and for promoting ease of living. Following are a few initiatives in the sector: 
    • Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) aiming for universal household electrification by providing last-mile connectivity.
    • Electrification of all households on Saubhagya portal, except few households in LWE affected Bastar region of Chhattisgarh.

Status of the Mining Sector

  • Score of the sector: India produces as many as 95 minerals which include 4 hydrocarbon energy minerals (coal, lignite, petroleum & natural gas), 5 atomic minerals (ilmenite, rutile, zircon, uranium, and monazite), 10 metallic, 21 non-metallic and 55 minor minerals. 
  • Performance: This sector provides basic raw materials to many important industries. Mining and quarrying sector contribution (at current price) to GVA accounted for about 2.38 per cent during 2018-19.

Status of Housing and Urban Infrastructure

  • Scope of the sector: India is one of the fastest-growing countries in the world with rapid urbanization. About 37.7 crore people were residing in urban habitats of India, comprising about 31 per cent of the total population which is expected to reach 60.6 crores by 2030
  • Crucial for growth: Urban habitats and cities are epicentres of economic growth. Over 60 per cent of India’s current GDP comes from cities and towns. Development of housing and urban infrastructure is crucial to attaining inclusive and sustainable growth. 
    • Initiatives like Smart Cities Mission (SCM) and Pradhan Mantri Awas YojanaUrban (PMAY-U) which mandate smart living and basic amenities to all eligible urban poor by 2022, respectively, trigger multiplier effect on the overall economy.

Major issues regarding the infrastructure sector in India

  • Long gestation period: Large infrastructure projects can take several years—sometimes even decades—to complete and turn profitable. 
  • Time and cost overruns: Finishing of infrastructure projects is a big challenge. They often run beyond time and budget, especially in sectors like roads, highways, power, railways, and petroleum. 
  • Financing of infrastructure projects is the biggest issue in India. Banks are often wary of lending to big infrastructure projects. 
    • The current adverse scenario in India's banking sector has made financing of projects even more difficult. 
  • Unrealistic targets: Indian infrastructure-related project announcements have often been criticised are unrealistic and unachievable. Even many existing projects face implementation challenges.
    • There are concerns regarding fiscal transparency and accountability of infrastructure projects. 
  • Little private participation: Though the PPP finance model provides a good alternative, it has not always been a success. Land acquisition delays, weak enforcement of contracts and sundry difficulties in the conduct of business in India have served to dissuade private participation. 
    • Contract enforcement issues significantly reduce the "bankability" of infrastructure projects. 

Conclusion and Way forward

For smooth and fast development, India needs adequate and timely investment in quality infrastructure. Well-developed infrastructure enhances the level of economic activity, creates additional fiscal space by improving the revenue base of the government, and ensures the quality of expenditure focused on productive areas. 

There is a need to develop a robust bond market for infrastructure companies, speedy resolution of infrastructure disputes, optimal risk sharing through better and balanced PPP contracts, and sanctity and enforceability of contracts. India needs to ensure that infrastructure and infrastructure-related businesses have ease of access to inputs at appropriate price levels. There is a need to simplify administrative procedures to make them more responsive, yet robust. 

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