Infrastructure- a necessity for higher growth
Posted : January 28, 2005 at 3:50 am [IST]
India’s physical infrastructure is a serious handicap for its growth. At any given time, up to a quarter of our national and state highways are in a logjam. Trucks and buses crawl at average speeds of 25 kilometres per hour (kmph) as against the world average of 50 kmph or more. All these years, the automobiles manufactured in India could not be exported to developed countries as their speed was limitation. They were not suitable for long haul on motorways. I came to know about it when Tata Motors took over the commercial vehicle manufacturing plant of Daewoo, Korea. Recent port congestion at the Nhava Sheva container terminal, India’s most efficient, privately-operated terminal, reduced foreign trade by around Rs 5,000 crore. India is not having any airport of International standard. Less than a third of the country’s billion people have access to proper sanitation.
India currently spends a mere 3.5 per cent of its GDP on physical infrastructure. The World Bank estimates that in next five years, South Asia will need to invest 3.06 per cent of its GDP every year to build new roads, railways, power plants, sanitation facilities and telecom networks. Another 3.82 per cent of GDP will have to be reserved to maintain current infrastructure. India will have to nearly double its spending on infrastructure if it is to catch up with the rest of the world.
Let us now look at China. In 2002, according to investment bank Morgan Stanley, China’s total capital spending on electricity, construction, transportation, telecom and real estate was $260 billion (20.3 per cent of GDP). India spent just $31 billion (6 per cent of GDP) in the same year. India’s Golden Quadrilateral Project is likely to cost $12 billion over eight years. China, on the other hand, has been investing $24 billion every year on highway improvement.
The investment in infrastructure has given China the long-term advantage. In India, the cost of infrastructure services is 50-100 per cent higher than that in China. Average electricity costs for manufacturing are three times higher in India, rail transport costs are three times higher and the lead-time for India’s trade with the US is 6-12 weeks compared to China’s 2-3 weeks. However, it is only telecom where our retail prices are lower than those in China.
There is no escape but India will have to pump in huge investments in physical infrastructure, even though other sectors like manufacturing, healthcare, education, and most importantly, agriculture are also in dire need for huge investments. India will have to take some innovative measures. People at large will have to share the burden. It is a necessity for the much wanted growth that will reduce the poverty level.
Let us take the multiplier effect of the Golden Quadrilateral project. When complete, it will result in a saving of Rs 8,000 crore per year in fuel costs. It will also create about 18 crore man days of employment.
In a policy brief done for the Asian Development Bank, economist Xianbing Yao estimates that a 1 per cent increase in spending on rural roads can cut India’s rural poverty rate by 0.064 per cent, because of a combination of factors - higher agricultural productivity, increase in non-farm employment, a rise in rural wages and the indirect effects of higher economic growth.
Cesar Calderon of the Central Bank of Chile and Luis Serven of the World Bank say that if all Latin American countries were to catch up with Costa Rica (the regional leader in terms of infrastructure), their long-term GDP growth would be higher by between 1.1 per cent and 4.8 per cent; and their Gini coefficients (a measure of inequality) would drop by between 0.02 and 0.10.
Economist David Aschauer has argued that the decline in public investment in infrastructure in the US in the 1970s and 1980s was responsible for a productivity slowdown. A decade-old paper by economists Douglas Holtz-Allen and Amy Schwartz titled ‘Infrastructure in a Structural Model of Economic Growth’ argues that raising the rate of infrastructure investment would have a significant impact on annual productivity growth.
As per one estimate, India will need around Rs 2,760,000 crore of infrastructure investment over the next ten years. For the golden quadrilateral and the north-south-east-west corridor, the requirements are estimated at Rs 60,000 crore, of which Rs 16,000 crore is debt. The National Highways Authority of India requires over Rs 1,500 crore every year until the debt is redeemed. The railways need Rs 11,000-12,000 crore for enhancing capacity and strengthening rail network in the golden quadrilateral, connecting the four metros. Capacity addition for power generation is estimated to be 1,11,500 mw over 10 years and 142,000 mw over 15 years, by the expert committee on commercialisation of infrastructure. Average additional annual port capacity required, based on projected traffic, is 35.35 mt up to 2006. Further, urban infrastructure services (water, sewerage, sanitation, solid waste management, roads, street lighting) require roughly Rs 300 billion every year. Only 60% of urban India has access to water within premises. Also, solid waste collection efficiency is only 83% for Class-1 cities (those with above one million population), and even less, 63%, for class II ones. Based on estimates, roughly $30 billion is required annually for meeting the needs in power, telecom, roads (new and maintenance), ports and urban infrastructure. Available funding from user charges, taxes and rates, is only about $4 billion.
India will have to use all means to get the fund: hike in the cess on petroleum products, road tax, disinvestment of PSUs, the drawing of $5 billion from our foreign exchange reserves annually, collection of drive for pending taxes, additional taxes, special bonds, private investment, FDI , and any other innovative means.
- Indra
Category: Government Policy/Administration |
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