Saturday, February 15, 2003
M A I N   F E A T U R E


Budget 2003-2004
Putting the economy on the fast track
But do we have the infrastructure?
Taru Bahl

"A faceted crystal dome controls the amount of natural light coming in, a living roof filters out pollutants and minimises surface runoff while moving columns of air maintain ambient temperatures inside composite living stations run on renewable energy resources. Hosting multiple activity and work centres, they meet shopping, entertainment, medical, social and security requirements of their inhabitants. The dividing line between commercial, business and personal processes blurs and routine chores are carried out super efficiently from the comfort of existing positions. For physical movement, high-speed hovercrafts and magnetically levitated trains connect base stations to the mainland."

State of infrastructure: Some grim reminders

  • India’s urban system is the second largest in the world and the last five decades have seen an annual increase of about 8 million people in its urban centres.

  • The shortage of housing units is about 22.90 million. More than 90 per cent of the shortage is in housing meant for the economically weaker sections of society.

  • Port traffic is expected to rise from 300 MT to 850 MT per annum by 2009-10. The overall investment to handle the increase is estimated at US $ 15-20 billion.

  • In 1992-93, electricity boards’ losses zoomed to Rs 4,600 crore, and today the combined state utility finances stand at Rs 26,000 crore.

  • The Railways’ share of the freight and passenger traffic has declined from 89 per cent and 80 per cent, respectively, in 1950-51 to 40 per cent and 20 per cent presently.

  • Teledensity is currently estimated at 4.8 per cent. It is almost 7.5 times behind the world average.

A sequel to Living in the Future? You may be wrong. Given the cascading effect of developments in the field of infrastructure worldwide, India will be similarly poised much sooner than we think right now. However, much needs to be done on this front, and urgently too.

Contrast this with a prediction which is at once futuristic and frighteningly primitive. Desmond Morris in his book The Naked Ape talked of urban conglomeration and lifestyle congestion. To prove his point, he conducted research by putting mice together for an extended period of time. The congested physical space pushed them to display aberrant behaviour. Many turned cannibalistic and homosexual.

When public systems collapse and turn incapable of managing population pressures, an overall degeneration leading to chaos and violence is inevitable. A day in Delhi for an unsuspecting out- of -towner is a case in point. Power breakdowns, pollution, traffic jams, congestion and overstretched infrastructure test nerves to a breaking point. A complete collapse seems imminent as all support systems of modern living are in tatters.

Infrastructure is supposed to be the driver of economic growth. It also impacts the day- to- day lives of ordinary people. If countries like China with mammoth problems of population and government control can create world class cities like Shanghai, going as far as dispensing with bicycles which is their country’s lifeline, because it would mar the city’s landscape, why can’t we clean up our cities and rivers, eliminate corruption, provide education and health for all? Why can’t we have a road, rail and air network which functions with clockwork precision? Why can’t we install affordable housing in well- laid out townships for different income groups, dot our cities with malls and expressways and have an assured supply of power and water? Is it too tall an order ?

The Confederation of Indian Industry as part of its 15th biennial International Engineering and Technology Fair addressed these concerns by earmarking 15,000 sq. metres space in The India Infrastructure Show, a concurrent event which took on every aspect of infrastructure, bringing together policy makers, manufacturers and service providers across sectors. Vinayak Chatterjee, Chairman, Feedback Ventures, runs a company specialising in infrastructure projects and works closely with state governments. He says, "Until a few years ago, infrastructure was a government monopoly. That’s changed now. More corporates are revving to invest in Indian infrastructure."

On the other hand, it is clear that states having a definite policy on infrastructure and the right approach to private-public partnership stand to gain. Chief Minister Narendra Modi, at a special industry interface at the IETF, said, "Gujarat is a model state. It is the first to have an independent infrastructure board. It was the first to privatise its ports, besides having intensive private-public partnership in road building and highway construction." Other states like Madhya Pradesh, Karnataka, Andhra Pradesh and Maharashtra too are upbeat about infrastructure but the pace of reforms is still sluggish.

In spite of the liberalisation in 1991, the going has been choppy. Foreign investments have trickled in, but many of the investors have beaten a hasty retreat. Indian politicians mount lavish ‘phoren’ jamborees ostensibly to sell the Great Indian Dream but return empty handed. Terrorism, redtapism, changes in governments and their policies are the bottlenecks few MNCs are willing to battle against. Skeptics in Indian industry, who have nearly given up on India seeing a new dawn, say, "We had that special edge in technology since fluency in English made us a favourite for back office operations for the USA and Europe. But China will shortly overtake us here too. They are ferociously engaging themselves in learning English and honing their IT skills. It won’t be long before we find call centres shifting base there, leaving thousands of young people jobless once again. This time the severity of the consequences will be much more if we do not upgrade our infrastructure quickly."

 


Surely, all is not lost. Few sectors have taken off but you can’t possibly be gung- ho about it just because some express highways have come up and Internet telephony and cellular technology has infiltrated urban lifestyles. Housing and construction have , of course, received a boost with provisions in the Income Tax regulations increasing the number of house owners. As a result of this the banking sector is thriving, home loan companies are on a roll and real estate and property is booming.

In sharp contrast, however, the shortage of housing units is about 22.90 million with more than 90 per cent of it being in the housing meant for the economically weaker sections of society. The government has committed to providing housing for all in the "National Agenda for Governance" and plans include the construction of 20 lakh units annually. Interestingly, India’s urban system is the second largest in the world and the last five decades have seen an annual increase of about 8 million people in its urban centres. The Census of India puts urban population at 285 million as of March 2001. Today, it constitutes 27.8 per cent of a total population of 1027 million which contributes 60 per cent to the GDP, which, in turn, accounts for more than 90 per cent of government revenue. Desmond Morris’s hypothesis comes eerily to mind as you visualise this swelling mass of people, flaunting multiple vehicles, adding more than just one concrete home, negotiating a maze of unplanned construction in brick, aluminum, chrome and steel as schools, hospitals, public utilities and tenements invade every inch of your physical and mental space.

Thanks to private intervention, road and highway infrastructure have broken the jinx. Prestigious construction projects in metros, bridges and express highways should see fruition by 2010. BOLT projects worth Rs. 31 billion and Annuity Projects worth Rs. 22 billion have been awarded to the private sector. The introduction of a cess on fuel has provided impetus to improving and expanding road networks. An investment of Rs. 150 billion is being made by the Central Government, including the revenue from the dedicated cess on petrol and diesel, lending from multilateral agencies and private sector investments. Delhi’s Metro is operational, Mumbai-Pune Expressway has pushed the credibility of India’s prime commercial city and Maharashtra Road Development Project is aiming to turn Aurangabad into a dust free city by widening roads, streets and traffic junctions and improving highways. Surcharges and toll taxes would be levied and, in times to come, residents will have to pay for things they currently take for granted.

Privatisation of ports has given a fillip to economic initiatives. India’s 6000 km- long coast line is studded with 12 major and 139 minor and intermediate ports. They account for 95 per cent of the country’s foreign trade in volume and 75 per cent in value. There is action on the cards in the port sector owing to increasing foreign and coastal trade. Port traffic is expected to rise from 300 MT to 850 MT per annum by 2009-10. The overall investment to handle the increase is estimated at US$ 15-20 billion.

The sectors that have not taken off include, at the top of the pile, the power sector. For any modern economy, the electric power system is an axiomatic need. However, this last decade has seen unprecedented increase in office and plant automation, computer education institutes, dot com companies and call centres. Percentage loads generating harmonic flows in distribution network, like computers, UPS, sodium vapour lamps, tube lights and air-conditioners have led to overheating of transformers and generators. While considerable work may have been done by consultants in developing systems/procedures and building databases, it has not translated into greater efficiency. Earlier, the governments ran the power sector as a command and control monopoly. This has changed and they have slowly but surely ceded control to regulators and referees who lay down the rules of the game. However, regulation demands greater responsibility by government towards power. In the early 80s, power sector’s losses amounted to a few hundred crores of rupees— a sum that barely scratched the finances of the states. In 1992-93, the losses zoomed to Rs 4600 crore and today the combined state utility finances stand at Rs 26000 crores. Dismal state finances means axing social and infrastructural development projects. Add to this the deterioration in the quality of power supply and a systems collapse is inevitable.

Hence, financially strong utilities providing excellent quality power at the lowest possible tariffs are desperately needed. The high level of ‘disappeared energy’ in terms of transmission and distribution losses has to be checked. The states used to report T&D losses ranging between 15 and 30 per cent. However, the real losses were 40 to 50 per cent.

According to P. Chidambaram, former Union Finance Minister, "The power sector should see a big bang reform in Budget 2003. Till recently, every aspect of this sector was in a mess. Dabhol was forced to shut down, most major foreign players came in with enormous fanfare and left without a whimper – Cogentrix, National Power, Eastern Generation, Daewoo Power and AES. The Budget must make provisions for massive capacity addition in the power sector through a consortium led by NTPC." The Electricity Bill is likely to be tabled in the next Parliament session and the industry is keeping its fingers crossed.

The Indian Railways is the backbone of the country’s national transport infrastructure. With an extensive route length of over 62,800 Km, a workforce of 16 lakh runs 8049 passenger trains and 5500 goods trains, moving 1.36 crore passengers and 12 lakh tonnes of goods every day. However, this lifeline stands threatened today. It faces serious problems regarding competitiveness vis-à-vis other means of transportation. The Railways share of the freight and passenger traffic has declined from 89 per cent and 80 per cent in 1950-51 to 40 per cent and 20 per cent presently. The loss of market share to road transport, lack of operational flexibility, especially in pricing, high costs, huge pensions and other liabilities have emptied their coffers. Commuters and travellers are bracing to go through yet another hike in rail tariff.

The aviation industry as compared to its western counterparts is not so much in the doldrums. Though business travel has come down and costs on insurance and security are zooming, the Indian aviation industry is far from getting grounded. Air India has just cut its losses, there is competition amongst existing players and tariffs are being cut with innovative schemes for travellers. The Railways are, to some extent, losing their customers to the different airline companies but this honeymoon may abruptly come to an end if value addition does not take place simultaneously.

The one sector, which after taking flight found itself abruptly grounded, was telecom. 2002 was a landmark year with private operators buying into state-owned corporations. International long distance saw private players entering the market and making services affordable. Internet telephony was allowed 3rd and 4th cellular license operations and the basic service tariffs remained the lowest in the world. Cellular operators crossed the 10- million mark in December 2002 registering over 100 per cent growth in a single year. Yet, there remain unaddressed issues related to interconnectivity, acceptance of TRAI order and rates.

Teledensity is currently estimated at 4.8 per cent which is almost 7.5 times behind the world average. The rural density is much lower at 1.1 per cent. Issues like VPTs, competition and falling tariffs ensure that not all players will survive. The churning in the telecom sector will continue as will industry consolidation. For smaller players, limited to a few telecom circles and therefore unable to exploit the economies of scale, the future lies in selling out or allying with a larger player. Ultimately, the market will be carved up between 4-5 large players. However, the intervening period will be painful for everybody. Even those who do survive will face severe competitive and price pressures in the near term. Continuous investments in infrastructure and customer acquisition will, therefore, require significant cash inflows. But the returns from them will not materialise for several years.