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A recent survey pointed out that India's roads, airport and port sectors require a steep Rs 2,60,000-crore investment in the next six years. To speed up infrastructure development in the country, a well-defined regulatory mechanism is the need of the hour. A look at the government policies in the sector and India's growth prospects. By Manu Kaushik
It is a widely acknowledged fact that a world-class infrastructure will be needed to provide the platform for faster, consistent growth and for India to become a major world economic power. The government of India has been focusing on increasing infrastructure investment for the past six to seven years. But building a world-class infrastructure in a relatively short period of time is a very tall order for any country. Improving India's competitiveness in the global economy will depend on improving basic infrastructure and reducing waste in government spending. Key to achieving this is more investment by the government in infrastructure, instilling a ruthless efficiency to accelerate the completion of projects. There have been lots of studies on the investment climate for business in India, and they always cite infrastructure as being among the top concerns of the private sector in terms of factors that are holding them back. Upgradation of the transport (roads, railways, airports and ports), power and urban infrastructure is therefore absolutely critical for sustaining and reinforcing India's economic growth, and for attracting foreign direct investment. In the cases of roads, for example, only about half of India's extensive road network of more than 3.2 million km is paved, and about 20 percent is in good condition. National highways constitute less than 2 per cent of the road network but carry more than 40 per cent of total traffic. Nearly 38 per cent of the national highway network is single lane, while about 59 per cent is double lane. State highways and major district roads constitute about 13 per cent of the road network and 40 per cent of total traffic. This results in delays in transporting goods and adds to the wastage of fuel and to pollution. It also forces industry to hold large inventories, which lowers its competitiveness in international markets. The Expert Group on Commercialisation of Infrastructure estimated the loss due to poor roads and congestion at around Rs 20,000 crore per annum. Traffic volumes have been rising at the rate of 7-10 percent per annum, while there has been an even faster rise in the number of vehicles (12 percent per annum). Elsewhere, infrastructure in most cities is under severe pressure owing to the huge volume of rural-urban migration. Nearly 21 per cent of the urban population lives in squatter settlements, where access to basic services is extremely poor. Although 89 per cent of the urban population is reported to have access to safe drinking water, there are severe deficiencies with regard to equitable distribution of water. From India's own track record and the progress made by some of the developed and developing countries, it can be said that faster progress of infrastructure largely depends on both effective demand for projects and proper usage of funds. Many South-East Asian countries, and even developed countries such as the UK, have shown impressive progress by following the public-private-partnership (PPP) model. Often, the private sector is unwilling to invest in infrastructure projects. At present, however, the problem seems more to do with inadequacy of good projects. Hence, there is a demand-side effect. The private sector will get involved if a payment mechanism that reflects cost of providing infrastructure is in place. Another major reason for poor private sector participation is the regulatory environment. There is an urgent need to create independent regulatory authorities for ensuring a level-playing field, especially in the road, water, port, and oil and gas sectors. The independent regulators should be transparent and enjoy autonomy in framing sector-specific policies. One of their major tasks would be to usher in healthy competition. In India, considering the huge investments required for infrastructure, it would be ideal if greater emphasis were given to framing policies that encourage PPP in different projects in the sector.
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