Infrastructure Development in India Makes Economic and Political Sense
In the previous blog on the subject: http://nofrillsacademy.com/indias-infrastructure/, we had analyzed the major infrastructure needs of India. Infrastructure development is vital for economic growth. There is popular consensus amongst economists that Re 1 spent on infrastructure contributes Rs 2 to GDP growth. A study conducted by Leduc and Wilson found that the multiplier in the wake of the 2009 stimulus was “roughly four times” more than average. That means infrastructure investments offer more value when the economy is down. By massive investments in infrastructure China had managed to pull the world out of the 2008 recession. We should know that infrastructure expenditure contributes not only directly to GDP growth in the financial year, but indirectly in the long run by raising total factor productivity through reduction of transaction and other costs, thus allowing a more efficient use of conventional productive inputs. In this blog we shall analyze the efficacy of Indian government’s plans for development of major infrastructure.
- Rs 97,000 crore has been allotted for roads in the year 2016-17.
- Plan envisages construction and award of 10,000 km roads over the next fiscal year, upgradation of 50,000 km of state highways into national highways and rolling out of 85 per cent of the stuck projects involving investment of Rs 1 lakh crore.
- The Government has unveiled investments plans totalling Rs 10 trillion in highways and shipping sector by 2019.
- Plan envisages that the target for laying out new roads in India will be increased to 150,000 km per year from 2016 compared to existing 96,000 km.
- The government signed US$ 800 million loan agreement with The Asian Development Bank (ADB), for constructing 6,000 kms of all-weather rural roads in Assam, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal, by December 2017.
- India and Japan are planning to enter into a partnership and launch an infrastructure finance company which will provide soft loans for Indian road projects with a credit target of Rs 2000000 crores.
- Government has launched major initiatives to upgrade and strengthen 54,478 km of National Highways (NH) in the country.
- The government, through a series of initiatives, is working on policies to attract significant investor interest. The Indian government plans to develop a total of 66,117 km of roads under different programmes such as National Highways Development Project (NHDP), Special Accelerated Road Development Programme in North East (SARDP-NE) and Left Wing Extremism (LWE), and has set an objective of building 30 km of road a day from 2016.
Comments: The plans seem to be good. It is expected that execution will also be as good.
Summary of the major plans is given below:
- Investment would be close to double of the average of previous 5 years.
- 2016-17 capital expenditure planned is Rs 1.21 lac crores through joint ventures with states & PPP.
- Plan is to commission 2,800 km track in the year. BG laying rate has been increased to 7 km per day, compared with the past of 4.3 km per day in the previous 6 years. The rate is planned to be increased to 13 km & 19 km per day in 2017-18 & 2018-19.
- For freight corridor Rs 24,000 crores of projects have been ordered since Nov 2014 as against Rs 13,000 crores of projects in the last 6 years.
North East Region
- BG Lumding to Silchar opened; Agartala brought on BG.Mizoram & Manipur brought on BG with Kathakal- Bhairabi & Arunachal- Jiribam conversion to be completed in the year.
J & K
- Wk on Udhampur- Srinagar- Baramulla rail link project is progressing satisfactorily. 35 km of the 95 km of tunnelling has been done.
Make in India
- Government has finalised bid for 2 locomotive factories; proposed to increase procurement of train sets by 30%.
- Wi Fi provided in 100 stations & proposed for 400 more. 350 manned level crossings closed, 1000 unmanned level crossings removed.
Comments: The plans are good and good execution is also expected. An observation is that even more could have been done, if the government had done away with subsidising of passenger fare by Rs 30,000 crores.
- The Indian government plans to develop 10 coastal economic regions as part of plans to revive the country’s “Sagarmala” (string of ports) project. The zones would be converted into manufacturing hubs, supported by port modernisation projects, and could span 300–500 km of the coastline. Government of India plans to invest Rs 70,000 crore in 12 major ports in the next five years.
- Jindal ITF plans to invest nearly Rs 500 crore to improve operations in Haldia.
- The Visakhapatnam Port Trust (VPT) has outlined Rs 3,000 crore expansion-cum-modernisation plans aimed at enhancing the port’s capacity by nearly 50 per cent.
- Maharashtra’s Jawaharlal Nehru Port Trust (JNPT) plans to build a satellite port at Wadhwan near Dahanu (bordering Gujarat), which is estimated to cost Rs 10,000 crore to build and is likely to ease the congestion of ships at JNPT.
- The government plans to establish two new major ports, one at Sagar in West Bengal and the other at Dugarajapatnam in the Nellore district of Andhra Pradesh.
- The Ministry of Shipping, in collaboration with Rajasthan government, has planned to develop an Inland Shipping Port at Jalore, Rajasthan.
- The government plans to increase Paradip Port’s coal handling capacity from existing 7.85 million tonnes to 30 million tonnes.
Comments: The plans are good.
Inland Water Transport (IWT)
The Union government is working on a strategy to increase the movement of goods and passengers through waterways by nearly fivefold from a mere 3.5 per cent now to 15 per cent by 2019.
While road transportation cost per km is Rs.1.50, Railways is Re.1, for waterways it would be 25 to 30 paise only, with the added benefit of being more environment friendly and reducing the load from the other two means of transportation.
The government’s ambitious plans to develop 101 rivers into an integrated IWT have not found universal acceptance. The plan is linked with the rivers’ water linking project. Gadkari, recently introduced a new National Waterways Bill 2015 in the Lok Sabha. The proposal is opposed by environmentalists and has several major problems in implementation. India has already declared 6 waterways as National Waterways. We will just analyze one:
“ Jal Marg Vikas”, a World Bank-assisted project to develop the stretch on River Ganga between Haldia in West Bengal and Allahabad in Uttar Pradesh and make it navigable for ships with a depth of at least 3 meters. The project, worth Rs 4,200 crore, has the potential to serve a number of big cities such as Haldia, Howrah, Kolkata, Bhagalpur, Patna, Ghazipur, Varanasi and Allahabad, their industrial hinterlands, and several industries located along the Ganga basin. There is already an urgent demand to facilitate navigation by many potential shippers (thermal power plants, cement companies, fertilizer companies, edible oil companies, Food Corporation of India).
- A memorandum of understanding (MoU) has been signed between the Inland Waterways Authority of India (IWAI) and Dedicated Freight Corridor Corporation of India (DFCCIL) to create logistics hubs with rail connectivity at Varanasi and other places on national waterways. The joint development of state-of-the-art logistics hubs at Varanasi and other areas would lead to the convergence of inland waterways with railways and roadways, thus providing a seamless, efficient and cost-effective cargo transportation solution.
Comments: This is a great initiative. The immense benefits of IWT must be exploited. It will lower transportation costs and help Indian products gain cost competitive edge in the world market.
Government has a planned target of power for all by 2019. The power sector is set for an estimated investment of $250 billion. Renewable sources of power are set to receive $100 billion, while transmission and distribution segment is to get $50 billion. Another $60-70 billion will be for power generation including for restarting stalled projects and for new ones while $5-6 billion is set for energy efficiency projects. $20-25 billion investments would come for associated infrastructure required in replacement of old and out-dated equipment.
State Electricity Boards (SEB) are facing severe financial problems. Their outstanding loans are Rs 5,00,000 crores. States will have to take over 75% of the debt burden by 2017 and 50% by end of Mar 2016. SEBs will sell the rest of their debt as bonds backed by state guarantee. Once 50% of their outstanding loans are taken off, the states’ interest burden will straight away be halved. Most SEBs are expected to stop incurring losses by financial year (FY) 2018, while Rajasthan, Tamil Nadu and UP are expected to do so by 2019. To achieve this gap between cost and tariff would have to be bridged and theft and pilferage checked.
In FY15 power generation grew by 8.4% and the peak deficit was down to 3.5% in from 4.5% in FY14. This was largely on the back of rising coal stock availability at majority of the power stations and increase in the installed power capacity.
Comments: The future of power sector looks bright.
Conclusion: India’s Infrastructure Development
The infrastructure development plans appear impressive, even more so, when compared with the wasted decade of Sonia Gandhi’s misrule. Gadkari for Transport and Goel for Power deserve credit for their work. Prabhu could have done even better with the railways.
Overall performance in the development of major infrastructure will have to be rated as good. Public opinion needs to be moulded by the government to execute the plans for development of IWT.