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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  JULY 7, 2004

    Infrastructure: More, more and more
    MYSTOCKS | FREE NEWSLETTER

    By definition, infrastructure investment consists of large capital-intensive projects, often publicly owned or regulated, that serve as the backbone of the distribution system of any economy. Infrastructure here mean areas like roads, highways, railways, housing, telecommunications, ports, airports, irrigation projects and power. Investment in infrastructure is extremely important for the growth of an economy.

    The gross capital formation in infrastructure has almost doubled in last 10 years (Rs 459 bn in 1993-94 to Rs 909 bn in year 2003-04) at the current prices. Overall, as compared to the last year, there has been a fall in the gross capital formation in the infrastructure. The ones that have witnessed a growth in gross capital formation are electricity, gas & water and railways. Sectors like communication, storage and other means of transportation (roads, civil aviation, sea ports and inland water) have witnessed a fall of 15%, 10% and 5% respectively.

    Power
    The generating capacity in India as on 31st March 2004 stood at 112,058 MW and the total power generation figures stood at 558 billion kWh as compared to 534 billion kWh in FY03. The overall PLF (plant load factor or capacity utilisation) for FY04 stood at 72.7% as compared to 72.1% during FY03. The increase in FY04 came about due to higher PLF in the private sector (80.4% this year as compared to 78.9% last year). As can be seen from the table below, contribution of hydro-electricity to total power generated increased from 11.9% to 13.2% during the year. However, due to higher increase in the hydropower, the contribution of thermal power to total power generated came down marginally.

    Unit 2002 2003 2004 % change
    Electricity generated (utilities only) bn kwh 515.3 534 558 4.5%
    (a) Hydro-electric bn kwh 74 64 74 15.7%
    (b) Thermal bn kwh 422 451 467 3.5%
    (c) Nuclear bn kwh 19.3 19.2 18 -7.8%
    Plant load factor   69.9% 72.1% 72.7%  

    The T&D (transmission and distribution) losses stood at 34% during the year 2001-02 (the recent data available), which is on the higher side. The annual gross subsidy for the agriculture sector on account of sale of electricity stood at Rs 228 bn during the year. Since power to this sector is free of charge in most states, the government shares this burden (central and state). The government has given a higher Rs 240 bn projected subsidy for the next year. This could increase considering the UPA government's announcement of continuation in free power in select states. In order to control the aggregate technical and commercial losses, the budgetary allocation for the last year stood at Rs 35 bn, which will provide the financial support to state governments to undertake reforms.

    Telecom
    Telecom sector is another sunrise industry with huge growth potential going forward. As mentioned in the table below, the tele-density in India is still on the lower side (7.02 per hundred) as compared to more than 100% in the developed nations of the world. The total number of the telephone connections (both fixed line as well as mobile) has increased by around 40% during the year. Fixed lines grew by less than 3% as compared to 159% in the mobile segment. The growth in customer base has to be viewed in the context of increasing competition, falling cost of handsets and availability of service in new cities.

    Countries Tele density (2003)
    U.K 143.1%
    Australia 126.2%
    U.S 116.4%
    Brazil 42.4%
    China 42.3%
    Srilanka 9.6%
    Indonesia 9.2%
    India 7.0%

    Roads
    Roads in India carry around 85% of the passenger traffic and 70% of the freight traffic. Highways account for only 2% of the country's road network. The government has taken various initiatives to improve the road infrastructure of the country viz. National Highway Development Project (NHDP) and Pradhan Mantri Gram Sadhak Yogna (PMGSY). NHDP will be focusing on building better quality highways, where as the other one will address the rural road development. As we go forward, our interaction with corporates like Tata Motors reveals that roadways share of freight traffic will increase over the long-term (like any developing or developed economy).

    Ports and Civil Aviation
    Sea transportation forms a crucial part of transportation infrastructure of the country. On the back of higher exports by the steel companies, the cargo handled by the major ports increased by around 10% during the year. On the other hand, the domestic air traffic grew by around 9% between January 2003 to December 2003. The private sector participation accounts for around 60% of the domestic air traffic and is likely to grow going forward with the introduction of no-frill flights by private players.

    Outlook

    We would like to conclude by saying that the importance of infrastructure sector cannot be ignored by a developing country like India. Be it power, telecom, roads and rails, India lags other emerging markets. If the government wants the economy to grow at faster rate and provide a competitive edge to the manufacturing sector, infrastructure sector needs focus. If the government is not in a shape to fund these projects, private sector has to be provided the necessary impetus. It is not that the government has to be the all and end of it.

    "When you think of digitizing India there will be a massive amount of power required and I pray to this government that you have to push and push and push to invest in infrastructure". Mr. Jack Welch

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