Infrastructure development - GEEB


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  • India being the seventh-largest country in the world has maintained an infrastructure management that has enabled India to reach new heights.
  • (a) Agro-specific Infrastructure - consisting of irrigation infrastructure and agricultural
    (b) Transport & Communication Infrastructure - consisting mainly of Roads and Railways;
    (d) Financial Infrastructure - consisting mainly of Banking Services;
  • China spent $260 billion -- or 20 percent of its GDP -- on power, construction, transportation, telecommunications and real estate in 2002. In comparison, India spent just $31 billion, or 6 percent of GDP” [3].
  • the degree of usefulness and importance of these seven major infrastructures towards economic development of the country cannot be of equal weight. So, after assessing the importance and contribution of these seven infrastructures towards economic development of the country
    Centre for Monitoring Indian Economy (CMIE), Mumbai has worked out their individual values.
  • * Raw materials: China filled up a role gap left by the West in Africa and has become very active in the development of Africa to secure a stable raw material supply including oil.
    * Education: In the long run, the quality of education is THE key factor for economic development and growth. The Chinese government has reviewed its needs in schooling and universities, figured out that they could not build the classical teaching infrastructure fast enough, and has decided to build the largest online education capability on earth. India has a first class education system for a select section of gifted children, but it doesn’t scale. China could leapfrog every single country and scale a world class on-line education capability in a few years.
    * Electricity: India has massive projects to expand its electricity grid, including nuclear energy plants. On the other hand, electrical power is unreliable today in India and causes significant disruptions. It is amost considered as normal there. In contrast, China seems to have a stable electrical grid.
    * Water: One can hardly drink tap water in India while China is looking at seawater desalinization on an economic and very large scale to support its drinkable water needs. [See one of my favorite young companies in this field, Energy Recovery, that works closely with China.]
    * Pollution: In addition, I see China very involved in other green technologies. I would not be surprised if China came out with a killer solar-powered car in the next 5 years. In contrast, I see Tata, in India, focused on designing and producing a $2,000 gas powered car. Can you imagine what tens or hundreds of millions of those will produce in terms of CO2 emission?
    Culture, organization and value system are what will determine the winner in this race towards a stable, sustainable and non-self-polluting economic titan.
    China reminds me a little of Germany in the 20th century and in the Industrial Revolution: very organized, very focused and determined, facing trade-offs head-on and being gutsy on a large scale to leapfrog everybody. Chinese engineers are very good at reverse engineering the best hardware and reproducing it at lower cost. For the future, China also reminds me of Singapore with its very systematic and well thought through world class technology development, education and environment protection.
    India reminds me of Italy in the 15th century, with its creativity, individualism, talent, spirituality, respect of its cultural heritage … and systemic chaos. It is not by accident that India produces herds of very talented software developers as it takes a fairly unstructured thinking to excel in this field. I was not surprised to see a dozen of biotech start ups, founded by Indians, leveraging the most diverse genomic pool in the world. I predict that, beyond software, India will become a world power in biotech over time.
    At the end of the day, China and India will probably follow their DNA and develop themselves very differently, in a complementary manner. Two great countries. Two great histories. Two great cultures.
  • Government to continue focus on infrastructure developmentRecognizing the importance of development of adequate infrastructure for sustaining the growth momentum and to ensure inclusiveness of the growth process, the Government will continue to play a lead role in infrastructure development during the Eleventh Plan. The Economic Survey 2007-08 tabled in Parliament today, states that accompanying the recent moderation in industrial growth, the growth performance of some segments of the infrastructure such as power generation and movement of railway freight and also the production of universal intermediates like steel, cement and petroleum have shown a subdued performance during April-December 2007-08 as compared to the corresponding period last year. In the power sector, though the plan capacity addition is unlikely to be achieved, the growth in capacity in the current year is distinctly higher than in the previous years. The movement of cargo handled by major ports and air cargo has showed improved performance as compared to the corresponding period last year. The highly competitive telecom sector has maintained its phenomenal growth, the Survey adds.With the rapid growth of economy in the recent years, the importance and urgency of removing infrastructure constraints have increased. The Government has made an effort to facilitate the entry of private enterprise into this sector through changes in the legal framework. The Survey mentions that the role of private sector participation has also been facilitated by technological change that allows unbundling of infrastructure so that the public and the private sectors can take up the components according to their capacities.The Survey states that the recent moderation in the growth in the industrial sector has raised concerns in some quarters about sustainability of high growth of the sector. To deal with the situation emerging from the slow down of some export oriented sectors of relatively low import intensity including textiles, handicrafts, leather etc. the Survey states that the Government took certain measures to tide over the situation in short run. It emphasises that, over the medium term, there is little choice but to improve productivity even if there are issues pertaining to the exchange rate of currencies of competing countries.During the Eleventh Five Year Plan, the power sector is expected to grow at 9.5 per cent per annum. The Survey mentions that a capacity addition of 78,577 MW has been proposed for the plan period to fulfill the objective of the National Electricity Policy 2005. A number of projects envisaged for the Eleventh Plan have made steady progress and most of these are in a position to be commissioned well within the Plan period. It is expected that the total capacity addition during the current financial year would be 10,821.8 MW with thermal, hydro and nuclear accounting for 8,015 MW, 2,587 MW and 220 MW respectively. The Survey also mentioned that for development of coal based Ultra Mega Power Projects (UMPPs) each with a capacity of 4,000 MW or above, project specific shell companies have been set up as wholly owned subsidiaries of the Power Finance Corporation Limited to facilitate tie up of inputs and clearances. The bidding process in respect of Sasan, Mundra and Krishnapatnam UMPPs have been completed. For the development of hydro power potential, the Survey also states that a task force has been constituted under the Chairmanship of Minister of Power. The task force shall examine and resolve issues relating to hydro power development. To achieve the goal of electrifying all unelectrified villages and hamlets and providing access to the electricity to all households as envisaged under the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGYY), the Government has approved its continuation during the Eleventh Five Year Plan period. With an initial outlay of Rs. 28,000 crore, about 1.15 lakh unelectrified villages and 2.34 crore rural BPL households have been envisaged to be covered in Phase-1 of the scheme.The Survey states that improved resource management, through increased wagon load, faster turn around time and a more rational pricing policy has led to a perceptible improvement in the performance of the Railways during 2005-06 and 2006-07. During April-November 2007, the total revenue earning freight traffic grew at 8.2 per cent as compared to 9.9 per cent in the corresponding period of the last year. The Survey mentions that the Indian railways have been taking certain pro-active initiatives in the area of tariff and fare fixations and commercial practices. There has been conscious thrust on bringing in transparency, simplification and making rail tariff competitive to attract more traffic.In Road sector, the Survey states that 7,962 kilometers of National Highways under National Highways Development Project (NHDP) with the bulk of 5,629 kilometers lying on Golden Quadrilateral (GQ) was completed till 30th November, 2007. About 7,744 kilometers of National Highways are under construction. Nearly 96 per cent works on GQ have been completed by November 2007 and North-South and East-West Corridors are expected to be completed by December this year. The upgradation of 12,109 kilometers has been approved by the Government under NHDP Phase-III at an estimated cost of Rs. 80,626 crore. In addition to the above mentioned approved projects, the Survey mentions that there is a proposal for two-laning for 20,000 kilometers of National Highways under NHDP Phase-IV. The Government has also approved six-laning of 6,500 kilometer of National Highways under NHDP Phase-V at a cost of Rs. 41,210 crore. The Government has also approved the construction of 1,000 kilometers of express ways at a cost of Rs. 16, 680 crore under NHDP Phase-VI and construction of ring roads and service roads at the same cost under NHDP Phase -VII. For the North-Eastern region, the Ministry of Road Transport and Highways has set up a high power inter-ministerial Committee to appraise and coordinate individual sub-projects under Special Accelerated Road Development Programme for the region. An investment of Rs. 3,14,152 crore has been envisaged for the roads and bridges sector during the Eleventh Five Year Plan.Regarding Civil Aviation Sector, the Survey states that with the liberalization of Indian skies, the airlines market in India have witnessed several new players which has made it necessary for the players to build on their competitive strength. The Government has also decided to merge the two national carriers i.e. Indian Airlines Limited and Air India Limited into a new 100 per cent Government of India owned company. The move was aimed at building a strong and sustainable business entity. As per this arrangement, the National Aviation Company of India Limited was incorporated. The Survey further adds that the number of domestic and international air passengers (combined) has almost doubled between 2004 and 2007. Cargo traffic has increased by more than 45 per cent between 2003-04 and 2006-07.During April-October 2007, the cargo handled by major ports registered growth of 13.9 per cent against 9.5 per cent in the corresponding seven months of last year. The Survey states that there was an impressive growth of 13.9 per cent per annum in container traffic during the Five Year ending 2006-07.The telecom sector continued to register significant growth during the year and has emerged as one of the key sector responsible for India’s resurgent economic growth. With more than 270 million connections, India’s telecommunication network is the third largest in the world and the second largest among the emerging economies of the Asia. This has been possible due to the supportive Government policies coupled with private sector initiatives. The tele-density has also increased 12.7 per cent in March 2006 to 23.9 per cent in December 2007. Rural tele-density has increased to 7.9 per cent at the end of November 2007. The total FDI equity inflows in the telecom sector from August 1991 up to July 2007 have been Rs. 20,718 crore which is 8.1 per cent of the total FDI equity inflows into India during the period. Giving the future scenario, the Survey states that it is proposed to achieve rural tele-density of 25 per cent by means of 200 million rural connections at the end of Eleventh Five Year Plan. It is also envisages that internet and broadband subscribers will increase to 40 million and 20 million respectively by 2010. It is also envisaged in the Eleventh Plan to provide broadband for all secondary and higher secondary schools, all public health care centres and all gram panchayats.Regarding Urban infrastructure, the Survey states that with the launching of Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in 2005-06, the reform process of urban local bodies has begun. There is now a better appreciation at the state level of the importance of developing and sustaining the infrastructure through appropriate user charges. While sanctioning the projects, efforts are made to ensure public-private participation in the areas where it is feasible. An amount of Rs. 2,805 crore has been provided for the year 2007-08 for the Sub-Mission on Urban Infrastructure and Governance. 279 projects have been sanctioned at an approved cost of Rs. 25,287.08 crore for 51 cities out of the listed 63 Mission cities across 26 States till January 1, 2008.While sanctioning these projects, highest priority has been accorded to sectors that directly benefit common man and urban poor namely, water supply, sanitation and storm water drainage. 90 projects are expected to be completed by December this year. A total investment of Rs. 3, 35,350 crore have been envisaged by the Mission city for the development of urban services.Outlining the investment requirement for the infrastructure during Eleventh Five Year Plan period, the Survey states that to achieve the target rate of growth of 9 per cent for the Plan period, an increase of investment from around 5 per cent of GDP in 2006-07 to 9 per cent of GDP by the end of the Plan period is envisaged. The investment in physical infrastructure alone has been estimated to be about Rs. 2,002 thousand crore (at 2006-07 prices). Such a large magnitude of investment during the Plan period would need to be financed through non-debt and debt resources of the order of Rs. 1, 064 thousand crore and Rs. 996 thousand crore respectively. Keeping in view the need for financing infrastructure, the Ministry of Finance constituted a Committee in December 2006 to under the Chairmanship of Shri Deepak Parekh to identify the constraints and suggest measures for financing infrastructure. The Committee in its report submitted in last year has stated that there are macro-economic and institutional constraints in financing infrastructure. To maximize the role of public-private partnerships (PPPs), the Department of Economic Affairs has taken several major initiatives in the matters concerning PPPs including policy, schemes, programmes and capacity buildings. While encouraging PPPs constraints have been identified and several initiatives have been taken by the Government to create enabling framework for PPPs by addressing issues relating to policy and regulatory environment. To address the financing need of PPPs projects, various steps have been taken such as setting up of the India Infrastructure Finance Company Limited (IIFCL) to provide long tenor debt to infrastructure projects and launching of a Scheme for financial support to PPPs in infrastructure to provide Viability Gap Funding to PPPs projects.The challenges in implementing the infrastructure projects are immense. The Survey states that there is need to develop appropriate mechanism for financing infrastructure, especially the development of a domestic debt market is overarching. It is also important to ensure synergy in the efforts being made to develop different types of infrastructure through effective coordination between different agencies. “These challenges are serious, but they are by no means insurmountable”, the Survey adds.
  • Although India has been struggling to keep up with the fast developing infrastructural
    demands of the businesses, it has shown some signs of progress. The pace at which the
    government is contracting new road contracts to private investors is phenomenal. India’s
    telecom industry is highly developed. Cell phone services are available throughout India,
    even in the far flunked rural villages. The power and aviation sectors have shown similar
    if not better signs of development. The power providers in many states of India are
    private vendors. The Delhi and Mumbai airport have been contracted to be modernized
    by private investors with an investment up to $1 billion. If the government continues to
    privately contract the infrastructural projects and encourage investment in this long held
    public sector, then India can expect to continue its phenomenal growth.
  • Infrastructure development - GEEB

    1. 1. INFRASTRUCTURE DEVELOPMENT AND POLICY IN INDIA Presentation By, Rajasekar, Gopinath, Karthik, Raja, Sureshbabu. FW0709 FINANCE 03 GEEB
    2. 2. AGENDA  Introduction  Broad areas of infrastructure  Current states of India’s infrastructure  Factors impeding development of India’s infrastructure  Development of infrastructure  India and China  Privatization  Govt. continued to focus on infrastructure development  Conclusion Slide 2 of 26 - Karthik
    3. 3. INTRODUCTION  Infrastructure in India generally refers to the elementary supporting factors responsible for the entire frame of India.  The infrastructure definition says that anything that forms the core of the functioning of any country is infrastructure.  India being the seventh-largest country in the world has maintained an infrastructure management that has enabled India to reach new heights.  Infrastructure development includes economic (energy, power, telecom, transport, InfoTech, finance, etc) and social (education and health issues) infrastructure development. Slide 3 of 26 - Karthik
    4. 4.  Infrastructure development is a major constraint on the industrial growth in India. India is aiming to achieve 10-per cent annual GDP growth by the year 2011-12, but the country needed over $300 billion to upgrade its infrastructure over the next five years.  The country needed double-digit growth in manufacturing and services sectors in the next five years, and had to double farm output, if it was to meet the target.  The Indian economy has grown at an average eight per cent in the past three years, and a 10 per cent annual GDP growth is difficult to achieve unless the country improves its infrastructure. CONTINUED… Slide 4 of 26 - Karthik
    5. 5. BROAD AREAS OF INFRASTRUCTUREBROAD AREAS OF INFRASTRUCTURE  Physical infrastructure (Economic) • Agro – specific Infrastructure • Transport & Communication Infrastructure • Power Infrastructure  Financial Infrastructure  Social Infrastructure • Education Infrastructure • Health Infrastructure Slide 5 of 26 - Karthik
    6. 6. CURRENT STATE OF INDIA’S INFRASTRUCTURE  Poor road conditions and electricity shortage.  Over the past decade, electricity generation as grown up a compound annual rate of 5.5%, but the demand grown even faster to 12.1%.  Poor road conditions drastically affects the business transaction across the country and need the overall repair.  The international trade in India is adversely affected by inefficient ports. Slide 6 of 26 - Gopinath
    7. 7. FACTORS IMPEDING DEVELOPMENT OFFACTORS IMPEDING DEVELOPMENT OF INDIA’S INFRASTRUCTUREINDIA’S INFRASTRUCTURE  Poor judicial system.  Acquiring land in India is not easy.  India spent just $31 billion or 6% of GDP for infrastructure development.  Corruption.  Black money. Slide 7 of 26 - Gopinath
    8. 8. DEVELOPMENT STATUS OF INFRASTRUCTURE  Weighted value for major infrastructures by CMIE, Transport facilities – 26; Energy – 24; Irrigation – 20; Banking facilities – 12; Communication facilities – 6; Education facilities – 6; Health facilities – 6;  Development indicators related to major infrastructure to form Composite Development Index (CDI), Surfaced roads per 100 area, unsurfaced roads per 100 area, railway route length per 100 area, percentage of villages electrified, gross cropped area, bank branches per lakh population, post offices per lakh population, telephone lines per 100 persons, primary schools per lakh population, primary health centers per lakh population and hospital beds per lakh population. Slide 8 of 26 - Gopinath
    9. 9. CONTINUED…CONTINUED…  On the basis of composite development index of CMIE relating to infrastructure development of 15 major states of India in the early 1990s, Orissa’s rank was found to be 12 in the descending order. The CDI value of Orissa was 101.45 and this was just above the national average.  There were only three states namely Bihar, Rajasthan and Madhya Pradesh, which were infrastructurally most underdeveloped occupying the last three positions in the descending order. Slide 9 of 26 - Gopinath
    10. 10. DEVELOPMENT OF POWER SECTORDEVELOPMENT OF POWER SECTOR  Total electricity generation capacity in India is 101500 MW out of which 72000 MW is thermal, 24500 MW is Hydel, 2800 MW is nuclear and the rest is renewable. Out of this generation around 30 is from Central Sector and around 62 from State Govt. and the rest is by private sector generation. The approximate energy consumption pattern in the country is as below: Domestic : 21% Industry : 35 % Agriculture : 31 % Commercial : 7 % Slide 10 of 26 - Gopinath
    11. 11. POWER SECTOR ACTSPOWER SECTOR ACTS  Electricity generation, transmission and distribution in the Country is primarily governed by Indian Electricity Act, 1910, Electricity (Supply) Act, 1948.  Other legislation, Water Act, 1974, Air Act, 1981, Forest (Conservation) Act, 1980, wild Life Act, 1972, Environment (Protection) Act, 1986. Factories (Amendment) Act, 1988, Town and Country Planning Act, 1952 etc. Slide 11 of 26 - Rajasekar
    12. 12. DEVELOPMENT OF PORTS SECTORDEVELOPMENT OF PORTS SECTOR  India has a vast coast line to the tune of 6000 Kms and there are 11 major ports and 39 minor ports in the country classified based on traffic handled.  After liberalization India has embarked on privatization Ports on priority either component wise or through Joint Venture route with foreign Ports.  Principal legislation's governing Indian Ports are the Indian ports Act, 1908 and the Major Ports Trust Act, 1963.  The activities and development of Ports are governed by Environment (Protection) Act, 1986. Slide 12 of 26 - Rajasekar
    13. 13.  Indian road network is around 3 million KM length and third largest in the World.  The National Highways in the Country are governed by National Highway Act, 1956 which has been amended in June, 1995 after liberalization. OPEN AREA NORMAL RANGE National and State Highways 45 30-60 Major district roads 25 25-30 Other district roads 15 15-25 Village roads 12 12-18   DEVELOPMENT OF ROAD SECTORDEVELOPMENT OF ROAD SECTOR Slide 13 of 26 - Rajasekar
    14. 14. NEED FOR CHANGENEED FOR CHANGE  The areas to be tackled on priority is, • Improving the existing plants productivity. • Reduction transmission and distribution losses both technical and non-technical. • A strategy on demand side management with both command and control as well as economic incentive mix.    It is estimated there is good potential of renewable energy in India which can be economically exploited with little shift in policies and implementation. Slide 14 of 26 - Rajasekar
    15. 15. CONTINUED…CONTINUED… Potential (MW) Achieved (MW) Wind Power 45000 1267 Biomass (Bagasse) co-generation 3500 273 Small Hydro Power 15000 1341 Biomass gasification 16000 1700 Power from solid waste 35 15.2 Solar Power 3 times to total energy demand of Negligible the country (500,000 Tera KWH) Slide 15 of 26 - Rajasekar
    16. 16. INDIA & CHINAINDIA & CHINA  China is to manufacturing, India is to services.  China plowed its huge reservoir of domestic saving (about 40% of GDP) into best infrastructure.  Largest recipient of FDI in the world.  India suffers in comparison basically from having none of the above.  India has 24% national saving rate, a little more than half that of China.  Internally generated funds is less to plow back into infrastructure in India. Slide 16 of 26 - Raja
    17. 17.  Improved modern water supply and urban sanitation facilities.  Lagging computer infrastructure and computer literacy.  Cellular users: 28 million in India – 270 million in China.  Internet users: 16 million in India – 78 million in China.  Iron and Steel production: 28mn tons in India – 225mn tons in China.  55% of world cement is used by China.  Oil production: 36mn tons in India – 160mn tons in China. -2003 report INFRASTRUCTURE COMPARATIVE FACTS Slide 17 of 26 - Raja
    18. 18. INDIA VS CHINA  Raw materials.  Education.  Electricity.  Water.  Pollution. Slide 18 of 26 - Raja
    19. 19. CRITICAL STEPS IN MAKING INFRASTRUCTURE  Strong Government with clear direction.  Consistent and thoughtful marketing effort.  Bringing in the money (FDI & Private participation).  Creation of zones and infrastructure for businesses.  Business-above-all attitude. Slide 19 of 26 - Raja
    20. 20. PRIVATE DEVELOPMENT OF INFRASTRUCTURE  Privatization of public owned industries.  Private investment in highways and expressways.  Built – Operate – Transfer (BOT). Highway/Expressway Length(km) Total Cost($ million) Cost/km($ million) Mumbai-Pune 95 [a] 350 [a] 3.68 Mysore-Bangalore 111 [b] 630 [b] 5.67 Jalandhar-Amritsar 49 [c] 59 [c] 1.21 Chandigarh-Ambala 35 [c] 63 [c] 1.8 [a] Source: SPG Media, 2006, [b] Source: IANS, 2006, [c] Source: NHAI, 2006 Slide 20 of 26 - Raja
    21. 21. 1996 2006 024681012141618 PRIVATE PARTICIPATION IN INFRASTRUCTURE (US$ billion) BRAZIL CHINA INDIA Source: World Bank Slide 21 of 26 - Sureshbabu
    22. 22. EXPECTED PUBLIC-PRIVATE SECTOREXPECTED PUBLIC-PRIVATE SECTOR INVESTMENT CONTRIBUTION (2007-12)INVESTMENT CONTRIBUTION (2007-12)020406080100 Inpercent Electricity Roads Telecom Railways Irrigation Watersupply& Sanitation Ports Airports Storage Gas Total Public Private Source: Planning Commission Slide 22 of 26 - Sureshbabu
    23. 23. GOVT. CONTINUED TO FOCUS ONGOVT. CONTINUED TO FOCUS ON INFRASTRUCTURE DEVELOPMENTINFRASTRUCTURE DEVELOPMENT  Facilitating the entry of private enterprises.  Number of projects envisaged for the Eleventh Five Year Plan.  Task force has been constituted under the Chairmanship of Ministry of power.  Improved resource management, through increased wagon load, faster turn around time and a more rational pricing policy in Railways.  Liberalization in Civil Aviation sector.  An investment of Rs. 3,14,152 crore has been envisaged for the roads and bridges sector during the Eleventh Five Year Plan. Slide 23 of 26 - Sureshbabu
    24. 24. CONTINUED…CONTINUED…  Supportive policies in Telecom sector.  Jawaharlal Nehru National Urban Renewal Mission.  While sanctioning the projects, highest priority has been accorded to sectors that directly benefit common man and urban poor namely, water supply, sanitation and storm water drainage.  A total investment of Rs. 3, 35,350 crore have been envisaged by the Mission city for the development of urban services.  The investment in physical infrastructure alone has been estimated to be about Rs. 2,002 thousand crore (at 2006-07 prices). Slide 24 of 26 - Sureshbabu
    25. 25. CONCLUSION  The pace at which the government is contracting new road contracts to private investors is phenomenal.  India’s telecom industry is highly developed. Cell phone services are available throughout India, even in the far flunked rural villages.  The power and aviation sectors have shown similar if not better signs of development. The power providers in many states of India are private vendors.  If the government continues to privately contract the infrastructural projects and encourage investment in this long held public sector, then India can expect to continue its phenomenal growth. Slide 25 of 26 - Sureshbabu