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The Urgent Need For Infrastructure

Omkar Goswami


Dear prime minister, you must be tired of public letters addressed to you that espouse homilies about what must be done for the country. Even so, I decided to pick up courage to share a concern which have been bothering me over the past few months. Please do forgive this intrusion.


Your government will shortly complete a year in office -- a year which has been quite satisfactory on the economic front. Despite a less-than-average monsoon, India may well end up with slightly over 7 percent GDP growth for 2004-05.


This is a creditable achievement in a milieu of significantly hardened oil prices, and given that it follows 8.5 percent growth in 2003-04. Industry is trotting along quite nicely with almost 8 percent growth; services continue to grow at above 8.5 percent; and notwithstanding higher energy as well as raw material prices, companies will post growth in profits for 2004-05. More significantly, India is again catching the attention of the world, and for all the right reasons.


Yet, as a pragmatic economist, you must be thinking about the sustainability of economic growth, and grappling with a key question: "What can India do to ensure that it forever alters its growth trajectory from an average of 6.1 percent that it achieved between 1992 and 2004 to 7 percent and then, perhaps, even 8 percent over the next decade or so?"


The issue really reduces to just one word: "infrastructure". No doubt, some sectors have done well. Mobile telephony, is success story. Thanks to the private sector-led triple-digit growth in mobile phones, our tele-density has doubled from under 5 percent a few years ago to close to 10 percent today.

There are now almost 60 million mobile subscribers, and the number of mobile phones outnumber land lines. Yet, the fact remains that China had 344 million mobile users and another 319 million fixed line subscribers in February 2005, which translated to a tele-density of 25.9 percent for mobiles and another 24.9 percent for fixed lines -- or 50.8 percent in all.


Many would also consider our highways programme to be a success story. After all, 4,611 km of the 5,846 km which comprises the golden quadrilateral have been completed, and another 1,235 km are under implementation.


However, it is also a fact that only 692 km of the 7,300 km of the North-South-East-West corridor have been completed, and there is a sense that the pace of construction and awarding of contracts has slowed down since elections were announced last year. If we compare ourselves with ourselves, we may have done well.


But we only need to compare ourselves with China to realise how much more we need to do. By 2004, China already had over 25,000 km of modern multi-laned, tolled highways, much of which was financed by FDI.


In ports, too, while there have been improvements compared to a decade ago, we still have a long way to go before being in the same league as Shanghai, Tanjung, Johore, Penang or Colombo, leave aside Singapore. For instance, while India handled less than 10 million twenty-foot equivalent units (TEU) of container cargo, China handled over 50 -- and the Chinese ports are not among the best in class.

And notwithstanding much-needed reforms in civil aviation, nothing really has happened regarding airports. As far as railways go, it is determinedly moving in only one direction -- downhill.


The power situation is too embarrassing to speak of. One can keep on repeating the beneficial enabling effects of The Electricity Act, 2003 and the unbundling of SEBs, but there just isn't enough power generation, transmission and distribution on the ground.

The fact that 60 percent of Indian manufacturing entities need to have their captive power generating units or gensets says it all. In China it is 16 percent; in Brazil 17 percent; and even in Pakistan it is 42 percent.


A recent study that I am doing for the World Bank suggests that in order to maintain the Tenth and Eleventh Plan targets, the investments needed in roads, power, railways, ports, airports and telecom for the next decade will be Rs 1,914,300 crore -- of which the central government may at best be able to finance Rs 1,360,100 crore.


We don't need to closely debate the numbers. Any which way, these are large enough. That brings me to my basic point. We cannot sustain even 7 percent GDP growth over the next five years without a big push in infrastructure. And we won't be a cynosure of all eyes if our average growth rate hovers at around 6.5 percent while China's trots along at over 8.5 percent. Clearly, the thrust has to be infrastructure.


Unfortunately, infrastructure is a very disparate business, with each sector falling under different -- often overlapping -- ministries. Neither is there sufficient coordination, nor accountability in any real sense.


Barring the numbers given in Plan documents, there are no clear infrastructure plans, targets and defined implementation schedules. Some ministries are better than others, but that's not enough given the size of the task.


To give infrastructure the importance it deserves, there has to be a signal that the ownership lies at the highest level of government. Therefore, it would be advisable for your office to have a dedicated infrastructure secretariat reporting to you, which would not only monitor the status of projects in different sectors but also convene meetings once every two months between you and your infrastructure ministers.


This secretariat could ensure consistency in policies, quickly identify problems and refer them to appropriate levels and, most importantly, regularly monitor progress. It would go a long way to demonstrate your government's focus on infrastructure. Properly executed, it would prove that implementation is the key.


Mr N R Narayana Murthy often says: "Profits are an opinion; cash in the bank is fact". Similarly, "policies are words; infrastructure on the ground is fact". You know this, and can make the change happen. Please do.


 Published: The Economic Times, April 2005


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