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INDIA’S INFRASTRUCTURE : A BOON OR A BANE?
Shantanu Kumar

Introduction

The importance of sound infrastructure for India’s continued economic growth can be gauged from the fact that the necessity of further and urgent investment in the same is a recurring theme at various political forums, in articles by eminent economists and by the media in general. Therefore, the road ahead would seem straightforward with such a consensus and more importantly the fact that the planning commission is envisioning a trillion dollars’ worth of investment in infrastructure in the 12th year plan. However, policy problems aren’t known to be wicked problems for nothing.

Infrastructure projects have been plagued with inefficient implementation due to corruption at the centre and local level. This problem has been exacerbated by the uncertain economic scenario in the west which has resulted in fluctuating levels of foreign direct investment (FDI) in India. The following graph shows that the trends of FDI inflows in the infrastructure structure. We can see that it has gone down in the last two years after showing a growth of around 6% in the year 2007.

Figure 1: FDI infrastructure inflows 2006-11 Source: Indiastat.com

This paper will attempt to explore the challenges that are impeding the infrastructural growth in the country and will seek to provide possible solutions to them.  

India’s Infrastructure

One of the many definitions of infrastructure is “the physical components of interrelated systems providing commodities and services essential to enable, sustain, or enhance societal living conditions ." It includes roads, water supply, power, telecommunications, Health Care, Education etc. Some of these have been discussed below:-

Power
Power shortage is one of the biggest impeding factors in India’s growth. With rising incomes and increasing urban population, the demand for electricity is rapidly growing. The Central Electricity Authority has projected an energy shortfall of 10.3 per cent and a peak shortage of 12.9 per cent in the country during 2011-12. The impact of such a shortage can be appreciated by the fact that India Inc. lost a staggering Rs. 43000 Crore in 2008-09 on account of power shortage alone, this when most of the firms were already struggling to cope with the financial downturn in the west. As shown in figure 2, the peak shortage has remained stubbornly high in spite of the government adding a record 15,795MW in 2010-11.

Figure 2 Peak Shortage Source: Annual Report 2010-11, Ministry of Power, Government of India

However, the overall record of the government in adding power generation capacity remains poor. It could only add 20950 MW in the 10th five year plan against the target of 41100 MW and looks set to miss the revised target of 62374 MW set in the 11th five year plan . While these delays pose a serious threat to the energy security of the nation, the fact that it is not the creation of additional power generation alone which will take care of the problem has to be underscored. The transmission and distribution loss in India, which according to the World Research Institute is the tune of 27%, is by far the highest in the world. This figure is striking when compared to China’s 11% and OECD countries’ 7%. Therefore the need of the hour is that there should be substantial investment in overhauling the power grid by converting the existing ones into “smart grids”, making and implementing tough laws on power theft in addition to the installation of power generation facilities.

Further, there should be a concerted move away from the thermal power plants, which currently contributes 65% of the total power generated, towards cleaner sources of electrical power like the renewable sources and even the nuclear ones. The success in generating substantial power through wind power (~1.6% of the total power generated) in India within a relatively short time shows that with sound policy and political backing the renewable sources can play a big role in meeting India’s energy needs. A similar effort will be needed to make Jawaharlal Nehru National Solar Mission which seeks to generate 1,000 MW of power by 2013 and up to 20,000 MW by 2020 through solar energy, a success.

Roads
Roads are often called the lifelines of a nation. The state of the roadways has a direct impact on the trade and commerce. Statistically, India has the third largest road network in the world and in terms of sheer density (Kilometres. of highway per square kilometre of land); Indian highway network outranks even the United States of America and is miles ahead of China and Brazil. In recent past, India has invested massive amounts in building roadways especially under the schemes of National Highways Development Project (NHDP) such as the Golden Quadrilateral project, North-South corridor, East-West corridor etc. However, the increase in highway network has barely been able to keep pace with the astounding growth of the automobile industry. The number of automobiles almost doubled within 2002-03 to 2008-09 alone.

Still, relative to other developing countries, India’s performance as far as road infrastructure is concerned is quite good. Paved roads are important for a multitude of reasons; they are much more suitable for modern vehicles as it increases their efficiency in terms of both speed and fuel efficiency apart from increasing their longevity. Figure 3 shows the comparison of BRIC nations in terms of their paved roads as a percentage of their total roads.

Figure 3 Paved roads as % of total Source: Tradingeconomics.com
China has been investing at an unprecedented rate in infrastructure and this is evident in not only them having the highest percentage of paved roads but also in the number of expressways and multi-lane highways that they have been able to build within a relatively short time. Russia’s growth has been hampered to a great extent by its archaic infrastructure and the fact that most of its infrastructure development has been Moscow centric.

Indian government is keen to improve the existing road infrastructure and has projected a total investment of $70 billion, with $41 billion of it is expected to be funded by foreign investors through FDI. There have been interests from Australian, South Korean, Canadian firms etc., however, unfortunately the level of foreign direct investment depends on the economic scenario of the west, which in the recent years hasn’t been great.

Great roads provides much more than higher top speeds and according to a World Bank report, the losses due to sub-standard quality of roads are to the tune of Rs. 30000 crores on account of lower fuel efficiency and charges incurred on vehicle maintenance. It goes without saying that better roads will also reduce the number of accidents which at 134000 deaths per annum is the highest in the world. Hence, it is imperative that the roadways are improved by continuing to build upon the initiatives that have been taken in the last decade, particularly by focussing on PPP model as it has proved to be successful in executing several large projects.

Health
Increasingly India is being associated with not only IT/ITES but also with medical tourism, and with good reason. India’s medical tourism sector which is expected to grow at an annual rate of 40% is likely to become a 10,800 crore industry by 2015 . There are some truly world class hospitals operating in the country today which offer excellent medical services to the foreigners at a fraction of the cost that they would have to incur in their home country.

However, these medical facilities are still far and few between and the ones that are there, is financially out of reach for the majority of our population. Figure 4 shows that overall India is lagging behind other similar developing nations in both the number of hospital beds and the number of practicing physicians.

Figure 4 Hospital Beds/Physicians per 1000 people Source: Nationmaster.com

In absence of adequate medical facilities, it is the poor who suffer the most. Cost incurred on treating illness/diseases is widely known to be one of the foremost reasons for families slipping into the poverty trap. According to a WHO report, majority of Indians spend around 70% of their income on medicines and healthcare against 30-40% of their peers elsewhere. Most low income families are forced to borrow the money from elsewhere to meet the medical expenses which leaves them facing mounting debts. The situation gets even worse if it is the earning member who requires medical attention.

In recent years the Indian government has initiated several programmes and schemes to bridge the gap between the supply and demand of the health services. One of most ambitious and popular one has been the National Rural Health Mission (NHRM). The impact of NRHM can be seen in the increase of public expenditure on health as depicted by Figure 5 below.

 Figure 5 Public Expenditure on Health Source: Indiastat.com
Although the above figures have shown a marked increase in the last 5-6 years, it is still way short of what the developing economies spend particularly China and Brazil. Therefore, there are certain steps that the government must take to ensure to build upon the success of NHRM. One amongst them is to extend this program into the 12th five year plan as it was originally designed to be run through the 11th five year plan only. Secondly, as recommended by several committees, the public expenditure on health should be increased to 2-3% of GDP. As the urban population is increasing at a faster rate than the rural population and there is a lack of healthcare options for the urban poor, a National Urban Health Mission on the lines of NRHM has already been envisaged and it should be implemented as soon as possible. Further, NRHM has primarily focussed on maternal and child health care, which while extremely important constitutes only a fraction of the health issues afflicting the society; hence, NRHM should ideally expand its operations to cover other diseases/illnesses too.

In addition to increasing the funding to provide health care, the government should look to PPP for creating healthcare infrastructure that India so desperately needs. Karuna trust that manages primary health centres in Karnataka and Chiranjeevi scheme that engages primary doctors for deliveries in Gujarat could be taken as examples of successful PPP’s and replicated in other states.

Education
Arguably, the greatest strength of India lies in its human resource which is relatively much younger to most countries. This strength can only be leveraged if the youth are imparted skills which can make them employable and thus enabling them to contribute to the economy. The danger is that if the youth turn out to be non-employable for any number of reasons then they can become a major liability on the nation. Figure 6 shows the average literacy rates of our country over the decades.

 Figure 6 India literacy rates 1951-2011 Source: Censusindiagov.in

There has been inadequate investment in both creation and monitoring of educational infrastructure by the Indian government which has led to several problems. The quality of education has been adversely affected due to poor teaching and lack of physical infrastructure. According to a study, 25% of teachers are absent at any given point of time, 59% of schools have no drinking facilities and 89% no toilets . It is not uncommon to see that students of different classes share the same room due to paucity of classrooms. The minister of state of HRD said that the country faces a shortage of 4.6 lakh classrooms at both elementary and secondary level schools. This situation has been bought to this impasse because the government of India has never been able to spend the recommended 6% of its GDP on creating infrastructure for education. As figure 8 shows the highest allocation, of 4.27% of the GDP on education was done in 2001-02.

Conclusion
India has grown at an astounding rate since the economic reforms of 1991,however, as this paper has shown, the investment in infrastructure hasn’t kept up with the growth. While the performance of implemented schemes has generally fallen short of its intended targets, several steps have been taken in order to improve the status quo, such as designing several crucial schemes with the “mission mode” at its core. The key to creating infrastructure that India desperately requires would have be private investment from both domestic and foreign sources, as the government is grappling with high fiscal deficit which is likely to continue for some years to come. Hence, the entry of FDI should be facilitated by not only talking the talk but also walking the walk. PPP model has been implemented to great success especially when it comes to creating roadways and they should be pursued with greater vigour in various sectors such as health care, education etc. The key to get private players invest in India would be to offer them benefits that other countries such as Brazil, US, UK, Chile (where PPP infrastructure investment is to the tune of 5% of the GDP ) provide. The sheer size of the Indian market and its growth will continue to make it an attractive destination for foreign investment should a suitable environment be created for them.
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The author can be contacted: email- p3104@irma.ac.in