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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  FEBRUARY 28, 2008

    Infrastructure: Changing dynamics
    MYSTOCKS | FREE NEWSLETTER

       
    The importance of infrastructure to economic development cannot be argued upon. With a country like India, which is witnessing 8.5% to 9% annual growth over the past few years, it becomes critical to have a quality infrastructure in place so as to sustain high growth levels in the future. While FY07 was buzzing in terms of investments attracted by the infrastructure sector, FY08 promises to be even more encouraging as has been highlighted by the economic survey.

    Let us discuss the survey's take on different sectors within the 'infrastructure' framework.

    Telecom
    The telecom sector has continued to register robust growth and has emerged as a key sector driving India's economic progress. With more than 270 m wireless connections, India's telecom network is the third largest in the world and the second largest among the emerging economies of Asia. In the month of January 2008, the mobile services companies added 8.9 m subscriber. Opening up of the sector has created an impressive forward momentum in the country resulting in massive investment and expansion with technological changes and improvement in quality of the telecom services.

    The targeted growth of 250 m by the end of 2007 was achieved in the month of October 2007. The total number of telephones has increased from 76.5 m on March 2004, to 272.9 m at the end of December 2007. While 63.8 m telephone connections were added during FY07, more than 7 m telephone connections have been added every month during the current fiscal. The teledensity has also increased from 12.7% in March 2006 to 23.9% in December 2007. While rural teledensity has increased to 7.9% with 63.7 m rural telephone connections, urban teledensity has increased to 60% at the end of November 2007.

    As a result of the rapid growth in telephones, the telecom tariffs, which were among the highest in the world less than four years ago, have now dipped to being among the lowest. The National Long Distance (NLD) tariffs that ranged between Rs 1.20 and Rs. 4.80 per minute in 2003 for different distances are now as low as Re 1 per minute under One India Plan from March 1, 2006. Similarly, tariff rates for International Long Distance (ILD) have shown a significant decline.

    Power
    Electricity generation by power utilities during FY08 is targeted to go up by 7.2% to 710 bn kWh. The growth of power generation in April-December 2007 was lower than the targeted growth rate. While growth in all three segments - thermal, hydro and nuclear generation - slowed down, nuclear power generation, in particular, showed the sharpest decline during the current year in comparison to the corresponding period last year. The deficit in power supply in terms of peak availability and of total energy availability during the current year was 14.8% and 8.4%, respectively. While each region is experiencing shortages, these are more acute in the northeastern and the western regions. In the case of the thermal power sector, the state, central and private sector plants have reported a plant load factor (PLF, or capacity utilisation) of 70.2%, 85.4% and 92.5%, respectively during April-December 2007-08. The PLF in each of these sectors as well as in every region has improved over time.

    The power sector is a major consumer of coal, using about 78% of the country's coal production annually. Coal-based thermal units account for around 62% of total power generation in the country. Thus, coal continues to be the mainstay for the power sector. The total consumption of coal by the power sector in FY07 was 302.5 m tonne (MT) of which about 9.7 MT was imported. About 7.3 MT of coal has been imported till Dec 2007.

    Out of the total installed generating capacity in the country, about 10.5% (14,692 MW), is based on gas or liquid fuel (excluding diesel). The supply of gas to power stations that use gas, as the primary fuel remains inadequate. Commitments of gas allocations made to power stations in the past are not being fulfilled, thereby leading to loss in generation.

    Roads
    India has one of the largest road networks in the world, aggregating to about 3.34 m kilometers at present. Out of the total length of national highways, about 32% is single lane, 55% is standard 2-lane and balance 13% is 4-lane width or more. Though national highways account for only 2% of the total length of roads, they account for about 40% of the total traffic.

    As of November 30, 2007, 7,962 km of national highways under NHDP project has been completed, the bulk of which (5,629 km) lies on the Golden Quadrilateral (GQ). About 7,744 km of national highways are under construction. Nearly 96% works on GQ have been completed by November 2007 and the NS and EW corridors are likely to be completed by December 2009.

    Progress of NHAI projects
    (Kilometres) GQ NS & EW NHDP NHDP Port Other
      Phase III Phase V connectivity
    Total Length 5,846 7,300 12,109 6,500 380 962
    Already four laned 5,629 1559 274 - 163 337
    Under implementation 217 4,762 1,801 148 211 605
    Contracts under implementation (Nos.) 25 148 32 2 8 16
    Balance length for award - 821 10,034 6,352 6 -
    Source: Economic Survey

    Historically, mainly because of the large volume of resources required, long gestation, uncertain returns and associated externalities, the government was making investments in infrastructure, particularly in the highways. But with ever increasing resource requirements, concern for managerial efficiency and consumer responsiveness, it has been decided that all the sub-projects in NHDP Phase-III to Phase-VII would be taken up on the basis of Public-Private Partnership (PPP) on Build Operate and Transfer (BOT) mode. The private sector participation envisaged in Phase-II of NHDP has also been increased.

    Airports
    The aviation sector has undergone dramatic expansion during the tenth five-year plan. The rapid growth of the economy especially during the last four years has been accompanied by a sharp increase in the volume of air traffic. The combined number of domestic and international air passengers has almost doubled between 2004 and 2007. Cargo traffic has increased by more than 45% between FY04 and FY07.

    As of now, there are 14 scheduled airline operators having 334 aircraft. During 2007, the scheduled operators have been given permission for import of 72 aircraft. The Ministry of Civil Aviation has given in-principle approval for import of 496 aircrafts and, in the next five years, more than 250 aircrafts are likely to be acquired by the scheduled operators. There are also 65 non-scheduled airlines operators who have 201 aircraft in their inventory. The explosive growth in air traffic has made it imperative to rapidly expand the air infrastructure to ensure safe and efficient handling of air traffic.

    The Airports Authority of India (AAI) has undertaken an ambitious project of modernisation of 35 non-metro airports. It is expected that terminal buildings and associated airside works in respect of 24 airports will be completed by March 2009, whereas the remaining 11 airports would be completed by March 2010. Separately, city side development of 24 select non-metro airports would be taken up through PPP.

    Ports
    Ports not only play a crucial role in facilitating international trade but also act as centre of economic activity in their surroundings and hinterland. The country's coastline of 7,517 km, spread over 13 States, is studded with 12 major ports and 200 non-major ports. Of the non-major ports, about 60 are handling traffic. The total traffic carried by both the major and minor ports during 2006-07 was estimated at around 650 MT. The 12 major ports carry about three-fourths of the total traffic, with Visakhapatnam as the top traffic handler in each of the last six years.

    In FY08, up to October 2007, the cargo handled by major ports registered growth of 13.9% against 9.5% in the corresponding period of FY07. About 80% of the total volume of ports' traffic handled was in the form of dry and liquid bulk, with the residual consisting of general cargo, including containerized cargo. There was an impressive growth of 13.9% CAGR in container traffic during the five years ending FY07. Half of the world's traded goods are containerized, and this proportion is expected to increase further. The Jawaharlal Nehru Port (JNPT), India's largest container port, handled roughly 3.3 m TEUs in FY07.

    Traditionally, most ports in the world are owned by the public sector. But privatisation of port facilities and services have now gathered momentum and India is also following the global trend. To meet this requirement, the government has already put a policy framework in place. Depending on the nature of service, private operators can enter into a service contract, a management contract, a concession agreement or a divestiture to operate port services. Areas that have been opened up to the private sector on a BOT basis include construction of cargo handling berths and dry docks, container terminals and warehousing facilities and ship-repair facilities.

    Outlook
    While the huge investments that are slated to be made in the infrastructure space are growing at a brisk pace, the timely execution of these projects remains a cause of concerns with many projects getting delayed thereby leading to cost overrun. While bureaucracy, which was the main concern with government investments in these projects, is slowly giving space to the public-private partnership, the private players also need to complete the projects on time to make their good return on their investment.

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