India and China have been the world's two fastest growing economies. However, the dragon nation has consistently outpaced its Asian counterpart. Apart from the exchange rate policy - which gives China an unfair advantage in world trade - infrastructure is the major dividing factor between the differential growth rates amongst the two Asian giants.
Infrastructure development is a key to any country's economic growth. And it is a known fact that India is facing huge infrastructure problems. The government has taken various steps to address these issues but with little success. Every year the government allocates trillions of rupees towards infrastructure development.
Now, one wonders despite such gargantuan allocation why is the progress on this front so slow. India is a democratic country unlike China - a communist economy - with a single party government. Infrastructure projects are typically awarded by the government. And India has a history of coalition governments.
So essentially when the government decides to award the project, it requires an approval from the allies as well. This proves to be time consuming. Secondly, if the project falls outside the geographical purview of the ally, the entire process faces severe roadblocks. This is because the allies have to keep their votebank happy. And to woo them they need to shower some goodies. Now how is that possible? - Bring in as much investment as possible into your hinterland!
Land acquisition proves to be another major issue in infrastructure development. Around 70% of the infrastructure projects are delayed because of land acquisition problems. Whenever any infra project is executed lot of people need to be displaced. However, these people, mostly villagers, are not keen on moving despite being offered a fair price for displacement. They file court cases to bring stay orders on the projects extending the time line for the projects.
It is high time that India adopts a legislation that prevents the displaced people from lodging cases, unnecessarily extending the time line. Litigation if any, should primarily relate to the fair price regarding their land rather than allowing homeowners to block land acquisitions by going to court. This phenomenon is prevalent in the developed world and the results are to see for us.
Land acquisition issue typically is more relevant for road projects. However, we believe that the government is taking right steps in this direction. NHAI is in the final stages of acquiring 80% of the land for the projects to be awarded till June. The pace of land acquisition has also improved four times than it was earlier. In order to bolster investments in the sector, the government should encourage connectivity amongst rural India by improving interior roadways. This can be done by encouraging private companies to bid for these projects with government providing the balance amount through viability gap funding.
Apart from land acquisition, utilization of the funds available for infrastructure spending is a moot point. Let us take the example of Bandra-Worli sea link. The initial cost of building the bridge was estimated to be around Rs 3 bn. However, various reasons led to the increase in cost by more than five fold to Rs 16 bn! To say the least the traffic data on the bridge is not encouraging either (50% below initial estimates!).
Now, one wonders whether Mumbai needed such an iconic structure or basic improvement in the pathetic condition of the roads and railway lines. It is for the government to take prudent steps in infrastructure management. It is believed that the poor condition of India's infrastructure is impacting the country's GDP growth rate by at least 2 percentage points annually. If the government think tank can find out a solution to the infrastructure problems, it will not be long before we overtake the dragon nation!