Expect nothing, live frugally on surprise.

Friday, October 24, 2008

Economic growth stifled by poor infrastructure

The ongoing global credit squeeze is bad news for India’s infrastructure plans which are critical to the country’s future goals. In the ramshackle state in which infrastructure is in today, it is robbing the country of substantial investment that would otherwise have come its way.
While India has climbed to the number two position in attracting foreign direct investment, many potential investors are shying away, deterred by the abysmal condition of Indian roads, traffic congestion, flight delays, and chronic shortages of power and water.
Economist Jagdish N. Bhagwati, who currently teaches at Columbia University, said recently that India’s GDP growth would run two percentage points higher if the country had decent roads, railways, and power. Long way to go
There is indeed much to do in the infrastructure sector to come up to international standards. Highways, modern bridges, world-class airports, reliable power, and clean water are in desperately short supply. Power shortage is estimated at 12 per cent at peak levels and 8 per cent at non-peak levels. Indian ports have a vessel turnaround time of three to five days, as against only four to six hours in Singapore and Hong Kong.
Most large Indian cities are overstretched in terms of infrastructure due to fast growth. The national highways account for two per cent of total road length, but 40 per cent of total traffic. By adding significantly to the cost of doing business, infrastructure bottlenecks deter foreign and private investors, and constrain the process of growth. Unless these issues are addressed quickly, India faces the prospect of missing the bus after all the hype that has accompanied the impressive rate of growth in the last few years. Funding is understandably a challenge for the country’s infrastructure projects exacerbated as it is by the global funds crunch in the wake of recession, but the problem is not just that. There is rampant corruption and bureaucratic red tape which delay projects and escalate costs for those that are looking to move ahead.
A Malaysian Indian told this writer recently how he had collected all his life’s savings and decided on setting up a small-scale unit in Karnataka so as to spend his ripe years in the country of his ancestors. Much against the advice of many, he migrated to India with his family.
A few months were, however, enough to chasten him. He was confronted at every stage by corrupt and extortionist Indian officials for every little sanction that he needed. Ultimately, he chose to pack his bags and return to Kuala Lumpur, resolving never to venture into India again.
Such instances of NRIs throwing up their hands in disgust abound and are a deterrent against greater investment flowing into the country.
For a country that is looking at an investment of nearly $500 billion in infrastructure alone over the Eleventh Plan, such a state of affairs is hardly reassuring. In China, the non-resident Chinese account for the bulk of the total foreign investment into the country.
Says a blog on the Internet from one who knows the ground realities: “China can build an airport from scratch in one year; that is the same amount of time the Indian government takes just to propose building an airport. Going through the bureaucracy is the biggest hurdle. There is no dearth of skill, labour, or technical know-how. The biggest problem is the hurdles one must cross with the government.”Bangalore’s plight
Look at Bangalore, the software pride of India, as an example. Its poor roads and chaotic traffic conditions are a nightmare for commuters with the number of vehicles on the roads having increased 10-fold since 1985. Traffic moves at a shocking 10 km an hour during peak hours and that has forced many companies to relocate to Mysore or to other southern States.
Bangalore’s Metro Rail has been in the making for 26 years. It was conceived in 1982 when the first of four plans for a rail system was unveiled. But each of those plans was stymied by bureaucratic red tape and corruption. These plans were eventually abandoned by successive State governments due to differences over funding or regime changes.
With a staggering three million cars, buses, trucks, motorbikes and auto-rickshaws vying for space on the city’s pot-holed roads (and a thousand more being added every day, thanks to better affordability), Bangalore’s Metro Rail managing director is on record saying that the project when completed by 2011 would cater to only 15-20 per cent of the transportation needs of the city.
The present blueprint for Bangalore Metro was produced in 2003. It was April 2006 by the time the Central Government approved it and sure enough, the costs had escalated by 16 per cent by then. In March this year, work on the first 7 km stretch began, but the tendering for the remaining 26 km has not even taken place.
A new airport was commissioned this year after much bickering over its distance from the city. And how much time did it take? As many as 17 years from the time the tendering process started. One can only keep one’s fingers crossed that the rail project would be completed by 2011. Yet, as the outspoken founder and chief mentor of Infosys, N. R. Narayana Murthy, said in a recent interview: “If our infrastructure gets delayed, our economic development, job creation and foreign investment get delayed. Our economic agenda gets delayed — if not derailed.”
Indeed, Bangalore’s problems are no different from the rest of the country’s woes.Corruption, bureaucracy It is all very well for the Indian government to resolve to step up spending on infrastructure from the current five per cent of GDP to nine per cent in the next five years, but if corruption is not controlled and the bureaucracy continues to delay projects, one can hardly expect the huge inflow of investment into infrastructure that is required.The recent Government order enhancing the limit for borrowing abroad for infrastructure projects from $100 million to $500 million can help only marginally, considering that the cost of borrowing abroad has gone up sharply. Last year, foreign funds were available at LIBOR plus 40 basis points. Now, the rate is LIBOR plus 350 basis points. This is unlikely to ease until the global crisis abates and that is steeped in uncertainty. If industrial production slowed down to a mere 1.3 per cent in August, the lowest for a month in a decade, it was in no small measure due to the slowdown in the infrastructure sector. Slower growth Latest Commerce Ministry figures show that growth of the six core infrastructure industries — crude oil, petroleum refinery products, coal, electricity, cement and finished steel — which account for 26.7 per cent of industrial output, accelerated by 4.3 per cent in July, down from 7.2 per cent in the same month a year earlier. All said and done, if India is to break into the big league, it is vital that the infrastructure dream be at least substantially fulfilled sooner than later. With the kind of bottlenecks there are, that is indeed no mean task.


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