ECONOMIC HIGHLIGHTS

New Delhi, 26 December 2007

Sustaining High Growth Rate…

BUT WHERE IS THE INFRASTRUCTURE?

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

If anything that might hold back India from sustaining a high growth rate of around 9 to 10 per cent is the slow development of its infrastructure. In spite of the fact that the problem has been well identified. 

Development of infrastructure like roads, rail network, waterways, seaports, airports, communications, electricity etc., is the basic pre-condition for any economy to achieve and sustain a high rate of economic growth. Thus, if the country has to maintain and sustain an over nine per cent growth rate it is essential to speed up the development of infrastructure.

Almost all the developed countries have a well developed infrastructure which enables them to maintain a relatively high growth rate. Take for instance, the Netherlands. The size of the Netherlands is almost equal to that of Haryana.  It has one port at Rotterdam compared to four major ports in India, but that one port in Rotterdam handles more shipments than all the four major ports in India taken together.

Similarly, Schipol Airport in Amsterdam handles more aircrafts than the four major airports in India taken together. Even in the City State of Singapore its port and airport handle more ships and airplanes than handled by all the major Indian ports and airports.           

Compared to these countries, even after 15 years of economic reforms, India’s infrastructure is still not in a good shape. This has been recognized by all the Governments in power.

Besides, the importance of infrastructure has been underlined in the India Infrastructure Report and various Governments have also made some moves like the development of the highways and the privatization of the Delhi and Bombay airports, but these do not add too much. Given that the availability of electricity in abundance, modern transport and communication systems, good roads, trained manpower etc. would form the backbone for the success of any economic reforms. 

After the Revolution in Russia in 1917, Lenin emphasized the importance of electricity without which, he observed, new Russia could never think of becoming an industrial power. This observation is as valid today for India as it was valid for Russia then.

Even after six decades of planned development we are not producing enough of electricity to meet our growing domestic demand. Every day there are power-cuts coupled with voltage fluctuations which are not only resulting in production losses and damaged equipments but also blocking potential fresh investments. It has become a ritual every year to divert electricity from the industry to agriculture during the summer months. 

Bringing things to such a pass today that the demand for electricity exceeds the supply of electricity. Moreover, the electricity transmission losses are high because of obsolete technology, the State electricity boards are perpetually in losses and foreign investments are limited to promises only. 

True, nuclear power may go a long way in relieving the power shortage in the country but that depends on the successful conclusion of the Indo-American nuclear deal which is being opposed both by the Left and the BJP.

Whether the deal finally sees the light of day or not, the Government's first task should be to pay attention to attracting foreign and domestic investment, on a very big scale, in electricity generation; it must encourage introduction of new technology and to the extent possible revamping and privatization of the State electricity boards so as to make them earn reasonable profit. 

Learning from the Enron experience, the foreign investment and contracts in this sector must be made not only transparent but also with a rider that once approved the project would be completed within the agreed time framework.

The second important infrastructure problem relates to the development of roads. There are very few fast roads for the high speed movement of goods. The roads all over the country are in a bad shape. 

Shockingly, only 20 per cent of the paved roads are said to be in good condition (roads substantially free of defects and requiring only routine maintenance) as against 30 per cent in Indonesia, 31 per cent in Philippines, 50 per cent in Thailand and 70 per cent in South Korea. Such roads not only slow down the movement of traffic but result in the excessive wear and tear of vehicles and excess consumption of petrol and diesel. 

Sadly, even in this sector, the country has not been able to attract private domestic and foreign investment. Needless to say the Government will have to provide clear-cut guidelines including tax incentives if any to attract investors in this field also.

Related to the development of roads is the question of changing the technological base of our big vehicles especially the buses, bulk carriers, specialized bulk carriers, as for frozen foods and so on. There has been large scale foreign investment in the car manufacturing sector but no significant foreign investment in the production of heavy vehicles to take care of the mass transportation needs.

The buses are rickety and uncomfortable, their designs old and outdated and they consume more energy per kilometre than required.  So is true of our bulk carriers. This is very important from the point of view of integrating all the domestic markets as well as exploiting the export market.

Similarly, the development of railways, aviation and river transport is very important for the success of economic reforms. The railways technology likewise is relatively outdated which accounts for a high rate of railway accidents in the country. Again, compared to other countries we have very few high speed trains. Since our ports are quite far away from the hinterland, it would difficult for the interior of the country to integrate with the world markets in the absence of a high speed railway network.

The demand for international air travel has gone up manifold. But Air India (after merging Indian Airlines with it) is unable to meet the demand because of the limited number of aircrafts. As a result foreign airlines have come in to India in a big way and Air India is left with only code-sharing by giving away her right to fly to these countries.

The third important area of infrastructure is communication. It is common knowledge that our basic telephones services are in a bad shape even though the availability of the telephone service is perhaps the lowest in India. Data shows there are only two telephones per 100 residents as against 7 in Brazil, 9 in Mexico and 16 in Russia. 

As for other services like voice and non-voice mail, data transfer, e-mail etc. the less said the better. The powers-that-be seem to forget that the growth of modern business depends upon the efficient communication system which is definitely lacking in India.

The introduction of cellular phones does not amount to modernization of the communication system. What the country needs is a very large expansion of basic telephone services followed by value-added services. The demand for the mobile phone services has been going up by leaps and bounds but the quality of service provided by the private players and others is still very poor. The question of the distribution of frequencies among the mobile players is yet to be satisfactorily settled.

In short, the country cannot now afford to ignore the development of all kinds of infrastructure. As the India Infrastructure Report states, the country would be needing between $150 to $200 billion in the next five years for infrastructure development in order to achieve an annual growth rate of 7 per cent.  We shall have to find the resources of this magnitude. ---- INFA

(Copyright India News & Feature Alliance)