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Economy: Eyeing irrigation, infrastructure - Views on News from Equitymaster
 
 
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  • Aug 26, 2002

    Economy: Eyeing irrigation, infrastructure

    Among the most disturbing facts of Indian economy has been the lack of infrastructure development in the country. After fifty-five years of independence, Indian agriculture still thirsts for an irrigation system in place. On the other hand, the Indian industry grapples with the issue of infrastructure bottlenecks in electricity and transportation.

    The gross mismanagement in the power sector, the precarious financial health of SEBs and political interference in functioning of the sector is public knowledge. Since the state has been directly regulating most SEB activities, they are prone to political interference of varying degrees as suited to populist objectives. From day-to-day operational matters to tariff setting, all are susceptible to such interventions. Electric power in India has become more of a free ride for a few than a remunerative service by the state. The matter assumes further significance given the fact that several companies with heavy power consumption are now looking to relocate their manufacturing facilities in China, citing substantial arbitrage in power costs. Others, probably have captive units.

    Certain sections of consumers like farmers continue to receive huge subsidies that erode the financial health of SEBs. Domestic and commercial consumers, in connivance with officials, indulge in power theft, further sucking the SEB dry. Subsidies were introduced to reduce the burden on the agricultural sector. At the same time, ensure consumer price of essential items do not escalate. While intentions, originally, might have been honest, the system has degenerated to meet vested interests. The SEB accumulated losses stand at nearly Rs 260 bn, around 1.2% of India’s GDP.

    The situation in the power sector, considering India’s requirement, has reached alarming levels now. Realizing this, power sector reforms are gaining importance despite tremendous political resistance. The Accelerated Power Development program (APDP) inspires some confidence. Under the APDP, the center plans to provide financial assistance to states for undertaking renovation and modernization (R&M) programs of power stations and also for strengthening the transmission and distribution network of the country. The center is willing to write off losses of the SEB in lieu of an undertaking by them that losses/ thefts would be controlled.

    The APDP has met with some success in terms of number of states signing up for the program. However, the actual implementation on the ground level needs to be seen going forward. Since there has been a change at helm in the power ministry recently, the pace of reforms could hit a roadblock.

    Off late, the country is making significant progress in the area of transportation. The Golden Quadrilateral and the North-South, East-West corridor project are expected to create an impressive road infrastructure in the country. The status and progress on this front is pretty encouraging. The government has promised the completion of the Golden Quadrilateral project by end 2003. Considering the progress so far and other factors such as the general election in 2004, the government is likely to achieve its stated target.

    According to one estimate, the country’s GDP could grow by an incremental 2% provided power and road infrastructure are in place. It is high time the country wakes up to the urgency of these reforms to break into the super growth rates of 8% plus.

     

     

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