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Importance of Infrastructure in Emerging India


India an emerging economic power, like that of the neighboring China, has been spurred by momentous growth rates in the past few decades.

But years of under-investment in infrastructure have left the country with poorly functioning transit systems and power grids that further endangered its slowing economy.

Burgeoning trade is putting pressure on India's inefficient ports, and rapid urbanization is straining the country's unreliable electricity and water networks.

Fulfilling India's aggressive economic growth aspirations, would be seriously challenged due to this infrastructure shortage.

The country needs to urgently accelerate the conceptualization and implementation of all its infrastructure development to enable a planned growth.

In a recent report McKinsey & Company, estimated that India could suffer a GDP loss of $ 200 billion in fiscal year 2017 due to inefficiencies in infrastructure, which is around 10 % of it's current GDP.

In terms of GDP growth rate, this would mean a loss of 1.1 percentage points. In terms of opportunity it would imply a loss a 30 to 35 million jobs. These jobs could lower the unemployment rate by 5 to 6 percentage points and move 3 to 4 percent of India's population above the poverty line.

Inefficiencies in implementing infrastructure projects in India occur at all stages. This includes awarding projects as per plan targets, securing financial closures, and executing projects within stipulated cost & time.

India is ranked 85th out of 148 countries for its infrastructure in World Economic Forum's most recent Global Competitiveness Report.

Delhi & Mumbai it's two largest cities ranked far below other regional capitals like Beijing & Bangkok for infrastructure. The endemic dysfunction has bruised India's international standing and discouraged direly needed outside investment.

There is broad consensus today that the global center of economic growth is moving to Asia, and India as a large emerging nation with a growing middle class, has captured the attention of the developed countries looking for new investments and trade opportunities.

By some estimates, India's economy will grow from it's current $ 1.8 trillion GDP to be world's third largest in 2030, with a GDP close to $ 30 trillion. A recent report by the National Intelligence Council (Global Trends 2030 : Alternative Worlds) states that by 2030, "India could be the rising economic powerhouse that China is seen to be today.

India's population is on the rise, and with a rapid urbanization, basic problems in the field of housing, water, energy, infrastructure and quality of life all pose to be big threats to the country's growth.

The population has come down 2.4 % to 1.1 %, but it is still heading towards a population of 1.5 billion people. 
Millions of people are entering what is loosely referred to as the middle class, and they are moving from rural India to urban India to seek to meet their aspirations. According to World Population report by UN in 2007, by 2030, 40.76 % of country's population is expected to reside in urban areas. 
It is this huge mass of people that will put extra pressure on demand for infrastructural amenities, such as Roads, Electricity, Drainage, Sewage Treatment, Educational Institutes, Post Offices, Medical Facilities, Banks, Railways & Security on our cities.

India has to take care of all it's infrastructural needs as it evolves from an agrarian society to an industrial & intellectual society.

Critical Areas of Development

  1. Power
  2. Transport (Highways/ Railways/ Waterways)
  3. Ports & Airports
  4. Irrigation
  5. Manufacturing
  6. Health Care

Power :

The chronic electricity shortage is viewed by the government and business community as one of the gravest threats to India's growth.

While GDP burgeoned at 8 % until 2010, electricity generation only increased at 4.9 % a year, according to the world bank.

With a chronic energy shortage, inadequate infrastructure, and insatiable demand coupled with environmental concerns, Power looms large over India's economic potential.

Thermal Power which includes, gas, liquid fuel and coal, accounts for roughly two-thirds of power generation, with most of it coming from coal. Other sources include hydro, wind, solar and nuclear.

Electricity sector is dominated largely by government owned utilities at both national and state levels. Jurisdictional conflicts in this sector led to inefficiencies in the use of capital.

Institutional boundaries of the energy grid correspond neatly to those of political constituencies, meaning a close relationship between the government and the state electricity board, which generated and distributed power only to the electoral boundaries.
Electricity theft has become a common practice.

The demand for energy in India is surging with the rise of population. India is entering into the most energy intensive phase of it's economic development.

The country has huge plans to invest in infrastructure, manufacturing and power plants and all of that is going to require massive amounts of energy.

It is estimated that the demand for energy in India will grow by 400 % between now and 2030.
The supply of energy is struggling to keep pace with the demand.

Fossil Fuels

Coal is the mainstay of India's energy consumption basket. India has abundant coal reserves. The reserves to consumption ratio of coal is about 85 years.

But there are some major blockers in realizing the full potential of coal.

The first thing is that the coal mines are located hundreds of miles from the main consumption centers. They are also located in areas that are currently facing social difficulties. The Maoist movement in India is concentrated in these areas where the coal mines are located.

The second problem is that the the infrastructure (Roads/ Railways/ Logistical Support) for bringing the coal from the production point to the consumption point is relatively weak and inadequate.

The third blocker is the quality of coal. The quality of coal in India is poor, it has extremely high ash and sulfur content.

For the above reasons coal has had difficulties in actually meeting its production targets, and indeed realizing perhaps the potential the policy makers set out for it.

Oil is not available in India in abundance. India has 29 years of reserves to consumption ratio of oil.

But the bulk of these reserves are in areas that are geographically and topographically very complex.
There is no easy oil left in India. It has been difficult to locate oil, but it has been even more difficult to extract the same on a commercial and sustainable basis.

In India, technology has been relatively underutilized and inefficiently utilized, the recovery rate of oil & gas from India's producing fields right now is 28 % compared to an average rate of around 40 % worldwide.

India's coal based power plants have a converging factor of 30 % whereas the average in the world is about 37 %.

India has not actually managed to use technology that is available off the shelf in an efficient manner.
Though India's energy infrastructure is based on fossil fuels, it still has to do much more to harness these indigenous hydrocarbon fuels.

It has not only to bring technology that will improve the recovery rate, but also must establish partnerships that will enable access to new sources of oil & gas, and the new unconventional fossil fuels like the shale oil & shale gas, that is available in India, but difficult to locate and develop commercially.

India can not manage to do that on it's own.

India must provide a conducive environment to national & international companies to invest in the energy sector.

The government should be looking to liberalize the coal mines so that the private sector has access to it, and it must certainly do more to ensure that the fiscal terms are competitive and predictable.  

The second element of India's strategy should be to focus on natural gas.

Natural gas is the bridge between our present position and our hoped for future situation when the renewable become a more dominant part of the energy basket.
The reason why natural gas has not acquired a more dominant position is because of absence of pipelines, and also because we have not invested perhaps enough in the LNG port terminals. 

Wind Power

India currently has an installed wind energy capacity of 23.8 GW and has again on paper, huge expectation from wind, which is targeted to increase to 75 GW by 2022. 

The development of wind power in India began in 1990s, and has significantly increased in the last few years. Although a newcomer in the wind industry, India still has fifth largest installed wind power capacity in the world.

The National Institute of Wind Energy has estimated that with the current level of technology, the on-shore potential for utilization of wind energy for electricity generation is of order 302 GW.

But the problem lies with the site. Land rights in India are not properly defined.

Solar Energy

Solar is highest item on Prime Minister's agenda. The government of India has given it great priority. 

A recent study by Deloitte and The Confederation of Indian Industries (CII) estimated India's solar potential at 749 GW, nearly three times the country's currently installed capacity and reported that not even 1 % of of this potential is currently tapped. 

Solar energy potential in India is immense due to it's convenient location near the equator. India receives nearly 3000 hours of sunshine every year, which is equivalent to 5000 trillion KWH of energy.
Rajasthan & Gujrat are the regions with the maximum solar energy potential. This coupled with the availability of barren land, increases the feasibility of solar energy systems in these regions.

Indian government is making aggressive moves to accelerate the country's solar energy supply. India currently has an installed solar capacity of 4 GW, which the government wants to raise by an incredible 55 % per year to 100 GW by 2022, putting the country on track to become one of the top five solar countries globally.
A large share of this solar power is to come from rooftops and distributed solutions.

Under the latest announcements the ambitious 100 GW plan by 2022 would be made up of :
40 GW of utility scale solar power projects (between central & state governments)

40 GW of rooftop solar energy

20 GW under the "entrepreneur" scheme, where unemployed youth and farmers are given grant from the central government to help fund 1 MW plants.

Bio Fuels

India is currently the fourth largest Green House Gas (GHG) emitter, the fifth largest energy consumer, and the second most populous country in the world.

There is an increase in the energy demand every year. In bio fuels country has a ray of hope in providing energy security.

India's bio fuel production accounts for only 1 % of global production. Bio Diesel & Bio Ethanol are two bio fuels that are commercially produced.

Currently, first generation feed stocks, such as sugarcane, maize, sugarbeet and cassava are commonly exploited for bio ethanol along with palm oil, jatropha oil and other edible oils from various oilseed crops for the production of bio diesel.

But since production of these compete with food crops, questions regarding food security and sustainability issues arise.

There is tremendous potential for second generation bio fuels in India, especially for cellulosic and agricultural crop residues.
The goal of second generation bio fuels is to extend the amount of bio fuel that can be produced sustainably by using Biomass consisting of residual non-food parts of current crops, such as stems, roots, leaves, husks that are left behind, once the food grain is extracted as well as other crops that are not used for food purposes, such as switchgrass, grass, jatropha, whole crop maize, miscanthus and cereals that bear little grain, and also industry waste woodchips, skins, pulps etc.

Transportation :

India's transport sector is large and diverse, it caters to the needs of 1.1 billion people.
Transport sector accounts for a share of 6.4 % of India's GDP, with only road transportation contributing up to 5.4 %. 

An efficient transport system is essential for sustainable economic development of the country and plays a significant role in promoting national and global integration.
An efficient transport helps in increasing productivity and enhances competitiveness of the economy, it is indispensable to the economic development of any nation.  

Road Transport

India's roads hold roughly 65 % of all it's freight and 85 % of the passenger traffic.

Road Transport in India is expected to grow by around 10 % per annum.
Given India's federal form of government, India's Road Networks are administered by various government authorities.

Road Network Categories
Authority Responsible
National Highways
Ministry of Road Transport & Highways (Central Government)
State Highways
State Governments (State's Public Works Department)
Major and other district roads
Local Governments, Panchayats and Municipalities
Rural roads
Local Governments, Panchayats and Municipalities

In order to give boost to the economic development of the country, the Government has embarked upon a massive National Highways Development Project (NHDP) and the Pradhan Mantri Gram Sadak Yojna (PMGSY) in the country.
The NHDP is the largest highway project ever taken in the country. The NHDP is being implemented by the National Highways Authority of India (NHAI).

While NHDP aimed at primarily strengthening and widening high density corridors of National Highways, PMGSY was designed to improve the accessibility of habitations in rural areas.

However, India's road sector had been stagnating since 2012, hamstrung by the economic slowdown and lack of Private Sector Partnership.

Between 2012 and 2014, the government could only award 5000 Kms of Road Projects or about 7 Kms a day.

Several projects faced delay in execution mainly on account of delayed land acquisition, removal of encroachments, shifting of utilities, receipt of approvals and environmental clearances.

Over the past few years NHAI had been awarding projects only under the Public Private Partnership (PPP) mode, in comparison to the item rate contracts or EPC basis.
The Road Contractors which were earlier engaged in executing projects under Item Rate of EPC were forced to enter the PPP space by undertaking projects through Build Operate Transfer (BOT) mode.

Since BOT projects require long term fund infusion, and the capital markets had not been conducive for raising funds, several players had restored to external borrowings to meet their equity commitments in various Special Purpose Vehicles (SPV) floated to develop projects, thus resulting in double leveraging and increase the overall indebtedness at the group level.

The operating margins of several Road Contractors also witnessed pressure because of rising commodity prices (for fixed price contracts) and idling of capacities as execution could not begin on many new projects, because of the delays in land acquisition, environmental clearances and financial closure.

In addition, the actual traffic in many operational Toll Road Projects has turned out to be significantly lower than the Traffic Estimates. 
Consequently lenders have increased caution while funding fresh projects, especially in those cases where bidding is perceived to be very aggressive. 

So, overall creditworthiness of Road Developers have deteriorated due to their leveraged balance sheet and strained profitability.
After the BJP swept into power in May-2014. One of the government's priorities was to resuscitate India's Road Infrastructure.
The Government promised to build 30 Kms of roads a day.
Government plans to award 10,000 Kms of Roads by March-2016, which is a far cry 2013 perspective, when the Central Government could only award 1,300 Kms.
In its annual budget the government pledged to invest Rs. 80,000 Crore ($ 12.6 Billion) in the Road Sector.

The revive the Road Sector, the BJP Government decided to rely on the tried & tested model of construction the EPC mode, where the construction is executed by the private developer but funded by the government.

The BJP Government has also devised a new hybrid annuity model in April-2015, where it will share the project costs with the private sector in a 40:60 ratio.
Under this model the government provides 40 % of the project cost to the developer to start work while the remaining investment will have to be made by the Road Contractor.

Still, the government will have to handhold the private sector into investing until the Roads become attractive once again.
Public sector will have to drive the growth of the highways in near term because of the weak financials of private developers and limited capacity to take up more projects.
early days of revival may have arrived, but there's still a long way to go.


Indian Railways is among the world's largest. Spread across 8000 Stations, 64,600 Km network enables running of 19,000 trains on a daily basis.

Railways provide the cheapest and most convenient mode of passenger transport for long distance and suburban traffic.
Railways have played a significant role in development and growth of industries in India. Railways help in supplying raw materials and other facilities to the factory sites and finished goods to the market.
Railways provide a strong medium of national integration.

Although Indian Railways have progressed a lot, both quantitatively and qualitatively during the past many years. But it still faces a chronic financial crisis. The annual rate of increase in cost has overtaken that of revenues during the last many years.
Indian Railways, the world's third largest train system, carries about 23 million passengers and 2.65 million tons of freight daily.
According to PwC, more than a quarter of Indian Railways are being used over capacity and 50 % of the network is nearing the same height of overload.
The state run network, which employs 1.3 million people, has struggled to keep pace with the rising passenger numbers, freight demands and economic aspirations.

About 94 % of the systems revenue are spent on operating costs and social obligations, leaving little to modernize it's creaking infrastructure.
Out of India's 130,000 railway bridges, about 25 % are more than a century old.
This alone presents massive security issues and causes severe delays regularly.
There is a desperate need to improve railway technology, such as signalling and expansion of the network itself through more tracks and trains.

The railways are increasingly becoming a transporter of bulk commodities for public sector (coal, iron ore, food grain, etc.) and are consistently loosing to roadways. Most of the national highways run parallel to railways and are consistently snatching revenues from railways.

Freight earnings account for over 70 % of the total traffic earnings of Indian Railways. Freight tariffs on Indian Railways are among the highest in the world in comparison with freight rates per MT-km on other world railways. 
The large volume of passenger traffic in India, and the inevitable financial impact on passengers of fare increases, has made increases in passenger fares a sensitive issue, particularly for second class passengers. As a result, passenger fares in India are heavily subsidized and much lower compared to most foreign railways. 

Indian Railways have been performing the dual role of functioning as a commercial undertaking and a provider of a public utility service. Social service obligations involve a measure of cross-subsidization of passenger services by freight revenues, as well as subsidization within passenger and freight segments. 

In the last 64 years while the freight loading has grown by 1344% and passenger kilometers by 1642%, the Route kilometers have grown by only 23% and Doubling & Multiple route length by only 289%.

The above growth pattern has resulted in large scale congestion of the system, affecting the speed of movement, something that impacts passenger satisfaction.

Key Initiatives by the Government to Improve Indian Railways

Ministry of Railways (MOR) has been investing heavily to ensure growth and development of Indian Railways.

The Government of India will be spending Rs 850,000 crore (US$ 127.62 billion) over the next five years to modernize Indian Railways for which they have received a 30 year loan from LIC. 

The Cabinet also cleared the Rs 82,000 crore dedicated freight corridor for decongesting existing network. The Ministry of Railways has sanctioned implementation of Eastern Dedicated Freight Corridor (EDFC) and Western Dedicated Freight Corridor (WDFC) with freight train speeds of maximum 100 Kmph.

Dedicated Freight Corridor Corporation of India Ltd (DFCCIL) has been set up as a SPV to undertake planning, development, construction, maintenance and operation of dedicated freight lines, along the eastern and western parts of India. In the 12th FYP, the GOI allocated $ 5 million for a 2,700 Km of dedicated rail freight corridor project. The total cost of the project is $ 16.7 billion.

High Speed Bullet Trains are being developed, as a part of the Diamond Quadrilateral network of high speed rail, connecting major metros and growth centers of the country.  

The newly launced NgeT, developed by the Central Railway Information Centre (CRIS) has enabled, substantial increase in online ticket booking capacity, number of inquiries per minute, as well as the capacity to handle concurrent sessions.

MoR has come out with several policies and schemes, such as R3i (Railways Infrastructure for Industry Initiative), R2CI (Rail Connectivity to Coal and Iron Ore Mines) and AFTO (Automobile Freight Train Operator) to attract private sector partnership, improve rail connectivity and increase its share in automobile transportation.


India has an extensive network of inland waterways in the form of rivers, canals, backwaters and creeks. The total navigable length is 14,500 Kms, out of which 5000 Kms of the river and 4000 Kms of canals can be used by mechanized crafts.
About 44 million tons of cargo is moved annually through these waterways.

The Inland Waterways Authority of India (IWAI) headquartered in Noida, UP, was created by Indian government on 27 October 1986 for development and regulation of inland waterways for shipping and navigation.

Freight transportation by waterways is highly under utilized in India compared to other large countries like United States, China and the European Union. The total cargo moved by inland waterways is just 3 % of the total inland traffic of India, compared to 47 % in China and 44 % in European Union.

The number of vessels carrying cargo that ply on inland waterway systems in China and EU are 2,00,000 and 11,000 respectively, while there are less than 1,000 vessels estimated to be using in the India Inland Waterway Systems.

The crucial difference being that these countries have maintained and upgraded their river systems on core routes that can support large modern vessel fleets up to 70,000 tons of cargo on single voyage, even as India is struggling to create depth in it's river systems for vessels of 1,500 tonnage to go through. 

Even though the Inland Waterways are a far more efficient mode of transportation than road or rail, the exploitation of the sector has remained largely neglected.
Most waterways in the country requires constant dredging on account of heavy silting. Not many entrepreneurs are interested in investing in inland vessels, which has further resulted under utilization of whatever infrastructure is created.

The Current NDA Government has emphasized that developing the Inland Water Transport (IWT) sector is a priority. 
Curently India has only 6 National Waterways.
Government has plans to convert additional 101 rivers across the country into National Waterways. 

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