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Infrastructure Development in India: A Transition in the Making

An analysis of the previous and present government plans reveal that Energy Security and Improving Connectivity (both physical and virtual) are emerging as the two major areas of infrastructure development in India. Recently, there has been a significant drive to emphasize on urban infrastructure (metro rail systems, sanitation, bus rapid transport systems, waste management and urban roads), renewable energy and connectivity (ports, railways). Addressing these needs as well as the backlog that already exists in infrastructure development will be the prime focus for both the public and private sectors in the coming years. 

The 12th Five Year Plan of the Government of India mentions a need for Rs. 56.3 trillion (about $ 1 trillion) for development of infrastructure.  From the Five Year Plan, it can be noted (Figure 1) that the highest level of investment is planned in the Power, Roads, Telecom and Railway sectors.

  Figure 1: Infrastructure Investment Planned during 2012-2017; Source: Twelfth Five Year Plan, GoI
 
 
Figure 2: Snapshot of various sectors in which Infrastructure Projects have been undertaken in PPP Mode between 2000-2013;  Source: PPP India Database 
 
As can be seen from Figure 2, traditionally, greatest private participation in infrastructure development in India has been confined to the development of Roads, Urban Infrastructure, Power and Ports. Most Urban Infrastructure projects have been involved in building roads or commercial and residential complexes. 
 
Roads have seen the greatest amount of investment in PPP mode since 2000. This is primarily because projects in Roads generally take lesser time, and the National Highway Authority of India prefers PPP as the preferred mode of investment in projects.
  Figure 3: Traditional vs. Emerging Sectors for Infrastructure Investment
 
Incidentally, Roads, Power and Ports are the sectors that have allowed Foreign Direct Investment (FDI) since the mid-1990s and the financing of this infrastructure development has been carried out with active participation from both the public and private sector. 
 
However, there is a changing need in the market, and evolving requirements of the population, which seems to be driving infrastructure development towards sectors that have primarily been the responsibility of the public sector. These sectors include areas like Urban Infrastructure (metro rail systems, sanitation, bus rapid transport systems and urban roads), Railways and Renewable Energy.
 

PPP investment in Urban Infrastructure to grow by 400% 

Figure 4: Status of Infrastructure Projects approved till 2013; Source: Cabinet Committee for Infrastructure, GoI

Figure 4 shows a snapshot of infrastructure projects that have already been completed, are under construction and are in the pipeline in various infrastructure sectors. Power projects have seen a drop in projects in the pipeline, as compared to projects that have been undertaken in the past. According to market source, issues plaguing the power sector as a whole, like coal block allocations lead to a large number of non-performing assets and are the primary reason behind a slowdown of investment in the power sector.
 
It is the sector of Urban Infrastructure which is expecting unprecedented growth in the amount of investment that has already been approved and is currently waiting for deployment (due to clearances, land acquisition, etc.). Urban Infrastructure presents the most striking contrast while comparing levels of past and future investments that are in the pipeline. Indian cities today are bursting at their seams (Delhi’s population has grown from 9.4 million in 1991 to 18.7 million in 2011, nearly doubling in 20 years) and do not have the necessary infrastructure to cater to the needs of the increasing population density. Building adequate roads, flyovers, and more importantly, Mass Transit systems are on top of the priority lists of most state governments today.  Another possible reason for this large spike in planned investment when comparing to investment that has already taken place, is that in many cases, Indian cities did not have adequate infrastructure to begin with. For example, out of the eight cities in India that have populations greater than 5 million (Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Pune) only two have a functioning Metro Rail System. Urban infrastructure therefore emerges as the need of the hour.
 
Railways is the other sector in which the planned private sector investment as compared to the previously deployed investment is about to grow multi-fold in the near future.
 
Even though the Five Year Plan was formulated during the reign of the previous UPA government and Modi’s NDA government may seem to have a starkly different outlook from their predecessors, interestingly, most of their thrust areas of infrastructure development continue to remain the same- Railways, Urban Infrastructure and Renewable Energy. However, there is a realignment of the role of the private sector in some areas. Already, telecommunications which had only a 41% share of Private investment planned during the Eleventh Plan Period has a 92% during the Twelfth Plan Period. 
 
Public Funded Infrastructure Sectors to undergo major transformation
To meet the projected cost of developing this infrastructure, the Twelfth Plan suggests that 48% of the investment needs to come from the Private Sector, a significant increase from the 32% during the Eleventh Plan Period.
 
 

Figure 6: Share of Private and Public Investment Expected during 2012-2017; Source; Planning Commission
 
In the past 6 months, one of the most significant policy changes has been the introduction of 100% FDI in Railways. 
 
Previously, the introduction of 100% FDI in Telecommunications coincided with Telecommunications shifting from a sector that had comparable share of private and public funding (41% private funding) during the Eleventh Plan Period to a “Predominantly Private Sector funded” sector (92% private funding) during the Twelfth Plan Period.
 
Something similar may happen in the Railways sector too. In fact, if the proposed plan for the introduction of bullet trains goes ahead, this sector might see much larger investment from the private sector than the public sector. 
 
Other government pet projects involve ambitious plans for developing “100 Smart Cities”, reaching 100 GW of Solar Energy Generation by 2019, creation of a Digital India, encouraging infrastructure in Ports under the “Sagar Mala” scheme and the “Make in India” Campaign. 
 

Figure 7: Budgetary sanctions during 2014-2015 and foreseen investment in Infrastructure by 2019

 

 

From the above data, it is clear that the two greatest areas of focus for the present government are

  • Energy Security
  • Improving Connectivity (both physical and virtual)
What does this mean for Sustainable Development?
Water is still not seen as a priority area or as a component of Energy Security
  • India has 16% of the world’s population and only 4% of the water. Already, India is a water-stressed state and it is expected to become a water-scarce nation by 2030. However, India does not recognize water security as a major concern yet.
  • India needs to realize that even Energy security is heavily dependent on water security. Thermal and Nuclear power plants are the largest consumers of water in the industry and cannot operate without adequate water supply. Hydroelectric power generation is almost completely dependent on water availability. Despite that, water is not receiving its due importance in the present plans.
  • A possible solution to this is encouraging the use of drip irrigation, which can be 80% less water intensive than flood irrigation, since agriculture accounts for roughly 80% of water use in the country.
  • On the industrial front, Zero Liquid Discharge systems could prevent further pollution of existing water bodies as well as reduce water consumption. Already, the government has embarked upon a pilot project to introduce Zero Liquid Discharge plants in 45 factories along the banks of the Yamuna to study the impact. 
Becoming ‘Smarter’ is synonymous with ‘being efficient’
  • The present government is focusing on digitalizing India and leveraging the power of new-age technology to reduce inefficiencies in the system. This will improve the efficiencies of various sectors like agriculture and power distribution while improving the government infrastructure and services. Realizing this in practice will require a significant infrastructure roll-out in rural areas (which currently don’t have much access) while also supplementing existing capacity for data exchange in urban hotspots. 
  • After coming into power, Mr. Modi’s first major development move was the announcement for a “Bullet Train” project. Since then, countries like Japan, China and France have shown great interest in the project, and several studies are underway to judge the feasibility of this project. Encouraging the use of rail transport over roads, goes a long way in reducing dependency on imported oil, which ties up with the government’s earlier mission for improving Energy Security.
  • There are plans for linking all major ports to railways and mining hubs to facilitate smoother transport of coal as well as industrial freight.  This is directly linked to the government’s aim to achieve energy security by improving movement of coal and oil.   

 Photo Credit: Flickr

Author: Sustainability Outlook