Building a road to disaster?

26 JULY 2010

Recently we have heard the government give us this wonderful view of an India where over USD 1 trillion, or Rs 50,00,000 crore will be spent on infrastructure projects.

At a conference I attended in New Delhi in March, 2010, I heard every Union Minister who mattered speak about what his department and secretariat plan to do on the infrastructure side. The program was inaugurated by Prime Minister Manmohan Singh, overseen by Deputy Planning Commissioner Montek Singh Ahluwalia, with a glimpse from the Finance Minister on how it all was to be funded.

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Indian was open for business and meant business.
The USD 1 trillion spend was our answer to the China infrastructure miracle.
Jai Ho!

Slippery oil
The infrastructure plan itself is, as such, not a plan in the grand sense of the word.
Every department had its plans to spend - that was true.
But was anyone thinking about which department really needed more money? Or which department deserved more money in the overall "where is India heading" sense?

For example, there was no discussion on whether all the road building of 20 km / day being adopted with great gusto would ever be matched with the mundane - but eventually critical - need for more petrol to fuel the cars that will be driven on the roads.

I have not heard the Ministry of Petroleum raise any objections or concerns on this ambitious road-building plan. But here are some numbers with some quick assumptions. I am sure the members of the Planning Commission - accused of sitting on armchairs by the road builders - have more hard data than my 5-minute check list, but here goes:

Table 1: Following the US model of building roadways
kms driven on average each year by an Indian car10,000
Fuel efficiency of a typical city-driven car (km/litre)10
litres needed every year for each car1,000
number of new cars every year (millions)1
litres required for the new cars (millions)1,000
litres in 1 barrel of oil159
barrels of oil required (millions)6.3
price per barrel, refined and landed in India, USD85
new money spent every year on oil for cars (USD mn)535

A car in India on average is probably used for about 10,000 kms of driving every year.
Assuming that a typical car delivers 10 kms for 1 litre of petrol, this suggests the car needs 1,000 litres every year.

And assume that, because the roads are being built and car ownership is being encouraged, Indians buy 1 million additional cars every year, that means we need 1 billion litres of extra petrol every year to fuel those extra 1 million new cars.
Since there are about 159 litres in a barrel of oil, this works out to about 50 million barrels of refined and finished petrol - new demand created every year.

A barrel of crude oil sells for USD 75, add transportation and refining costs and we get to maybe USD 85 per barrel.
So we need to buy USD 535 million worth of crude oil for the extra 1 million cars.

But what if the price of crude oil increases? Not so long ago, we saw crude oil prices at USD 150 per barrel. Maybe those high oil prices will come back to haunt us in the next few years.

Building a USA, or a Europe
Should the road minister be working with the railway minister on a plan to build railway tracks in between the roads that can allow trains to ferry passengers and cars? Should there be a system that allows a person going from Bombay to Pune to reach a parking lot at a train station at the start of the Bombay expressway, park his car, alight a express train to Pune, get off at the other end, rent a car or taxi, finish his work and - on the reverse commute - pick up his car and head home?

Is a plan to link the two growing metropolitan regions like Bombay and Pune feasible?

I don't know but maybe the Ministers with all their information gathering powers could figure that out.

The point is, when a build-out for infrastructure is being built out, shouldn't this be the main area of discussion? Are we building a country like USA where the automobile is the centre of all activity or are we building a Europe where public transportation is encouraged? People do own cars in Europe, but they use them a lot less than in the US.

Given the fact that we are already importing over 70% of our energy needs, which model should we be working towards?

China has, in some sense, made a mistake. They have gone the US route of building roads to encourage the production and sale of cars. China has now surpassed the US as the largest consumer of energy in the world due to its car policy and also due to its reliance on manufacturing.

Don't get me wrong - our roads are abysmal and we definitely need roads. But, don't we also need a viable public transportation system?

Building roads and bridges in every city for cars will only lead to the purchase of more cars - adding to traffic, pollution, and to our vulnerability to swings in oil prices.

No, this is not an argument to head back to the bullock cart age. It is a doubt about the true future costs of what we are doing today.

Neither the armchair economists in the Planning Commission nor the Ministers running the various sectors may be really planning for the future. They seem to be more focused on how to get a quick solution for the pathetic state of India's infrastructure.
To show that India can spend.
To show that India can "catch up" with China and USA.

Ten years from now, those highways they are building and financing with our savings will be crowded and they will again dig up those roads to build a high-speed railway line. Just as they are busy digging up roads in New Delhi, Bombay, and Bangalore to build rail links to decongest the roads.

There is no 20 year vision.
There is no real planning.
Each ministry has got their mantra: build and improve infrastructure.
So, each ministry is doing it.
After all, which Minister in his right mind would say "I suggest we build less roads or airports, and wish to allocate my money to the railways ministry"?

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Letting Goldman run the book
A small incident at the Conference.
The entrance was a mess.
Passes were to be mailed to us, but never got to us.
So we stood there in the first line to ensure that we were invited.
After having that cross checked and verified, we had to move to another line to pick up the actual entry badge.
In that chaos, most of us missed the inaugural speech of the Prime Minister. We were shunted into a side room to watch him on a large TV screen and then allowed access to the main hall once he had left.

But, in the melee outside, a point worth noting.
While I was waiting in line - like many others - the book in which we had to sign was picked up from the table, taken to a group standing on the side, duly signed by this group, they their badges and were whisked in to the hear the PM speak.
Not the kind of person to keep quiet, I asked one of the Indian gentlemen helping in this book-building process: Which firm are you with?

"Goldman", he replied.

"Aha", I said, "not only do you run the book, you also get it delivered to you."
What a show of power.

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Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)

Quantum Long Term Equity Fund, Quantum Equity Fund of Funds, Quantum ESG India Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
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30 Responses to "Building a road to disaster?"


Jul 27, 2010

India should learn from the example o countries like Singapore / Japan . Japan is more close as Tokyo has the density of population similar to Indian metros .
What is needed a good Metro network to connect the cities and neighbouring towns from were people can come to work ( This will reduce the pressure on Housing in big cities ) . For people to commute between MRT stations and there houses there should be a supporting bus services . The e-card used to pay fares for the train should be valid in the buses . ( this is the system in countries like singapore / s.korea / japan) this will eliminate the need to have small currency ( change ) and would be convenient for the passengers. At MRT stations there should be reasonable number of staff to manage the crowds , ensure a Q system to board the train ( this habit needs to be developed from day one with some amount of force to ensure that over a period of years people are disciplined ) . Ensure Metro services with 14-18 cars depending on the peak load and a regular frequency of 2-3mts in peak hrs.
Only such measure can make people less dependant on their cars , Good roads are still required for the movement of goods and refrigerated products .
I hear about many ministers making trips abroad to study their system , but we lack very basic set up like clean toilets , garbage bins , clean bus and trains stations to name a few of the basic requirements for which you dont need to travel overseas .



Jul 27, 2010

Ajit is absolutely right. We dont need to rush and copy others like US and China. What is the need of the day and building solid future is public transport systems. What is the need of the day and future is integrate all the departments in the government in more coherent way so everyone knows what they have to do,.

It starts with the policy framing. A deep thinking and analysis should be given into what is really needed for our country. PUblic transportation, Development of renewal energy sources, Education system, Population control policy for every religion in India are the most important things we need to take a look and take immmediate action plans.



Jul 27, 2010

While I am not sure whether road building should be curbed to check motor car ownership growth, I would agree on the point that our governments at the Centre and States, should expand local transport services to dissuade motor car usage. Making travel cheaper, faster and safer with introduction of good quality metro bus services (metro rail is expensive and time-consuming to construct, though it is welcome wherever possible)would go a long way to draw people to use mass transportation instead of cars. Further, market-driven pricing of petrol and total withdrawal of subsidies on petron and diesel would also help people to realize the actual cost of owning motor vehicles. These metro services would work better under private ownership or under public-private partnership. The recent cases of electricity distribution in Delhi is a case in point. There is a perceptible improvement in electricity transmission and distribution in Delhi.


Anil K

Jul 27, 2010

Hi Ajit,

My two cents worth ....

Instead of building a massive road network (actually the network already exists, it is that they are just concretizing and widening it) wouldn't it be better to spend the infrastructure billions on the RO-RO (roll-on, roll-off) concept as applied to railways.

It is well known that rail cost/km is much lower that road cost/km both in terms of building as well as in the transport cost. Therefore while vehicles may continue to be built (as evidenced by Individual preferences) inter city transportation should be encouraged (through a system of taxation) through the RO-RO concept. In this case, say a traveller from Bombay to Calcutta will drive his car or vehicle onto a rail car or wagon at Bombay and will then be transported by the railways to Calcutta, where he can alight by just driving off in his vehicle and can then use his vehicle for local trips within Calcutta. This concept makes more sense in the case of the truck/lorry carrier industry where a loaded truch could say drive-on at Bombay, drive-off at Calcutta and then make a home delivery at the local address.

In fact, this concept already exists in India. The Konkan railway runs a RORO from Mangalore to Roha (100 kms from Bombay) for northboubd/southbound lorries. This was popular initially but one doesnt hear much about it nowadays .... No prizes for guessing ..... The tyre lobby and the new vehicle lobby effectively got it killed or hampered so much that I dont think anybody uses it nowadays. After all if one's lorries are all carried RORO, then tyre consumption will fall, kilometers driven will fall and a truck bought for five years may last for 10 or more years causing less new sales for vehicle manufacturers.

With your resources, can you investigate this concept and see how workable it is ..... and is so, what are the odds that it will have to face in India?




Jul 27, 2010

How true is your story about Road-Rail-Petrol spend by our Ministries and the poor Aam Adami watching helplessly! I suggest you publish this in one of the wide circulated papers that is read by the concerned Ministries or send them a copy with an extra copy to the Prime Minister. Thanks for bringing out a new dimention to the socalled burning problem. Well considerered public transport system joining places is the only solution it seems.For some years at least we cannot afford this type of luxury in preference to our basic needs of food, shelter, health and education.


sandesh saboo

Jul 27, 2010

do we have people who can really understand the "big picture" and huge numbers we already have two companies manufacturing around 2 million cars per annum.maruti and tata motors together have reached the 2 million figure and the other easily add aroun another .5 million in numbers so we have to calculate for 2.5 million and may be the average usage goes down and it may not be 10000 kilometer per annum for each car.yes shreedhar we do need a holistic view.huge roads we have a limitation to the road widening we can do.almost half the roads are used for parking.only if we could have more parking bays our roads would be free for moving vehicles.


Sudarshan Kumar

Jul 27, 2010

The operative word in 'public transport' or 'public infrastructure' ideally would be 'public'. That's what's been missing right since independence (or soon thereafter, if you forgive the romantically rosy days of the Nehruvian mixed(up?) economic model).

Unsurprisingly, for our neta/babu/contractor/ industrialist nexus the real operative words are 'infrastructure' to build upon their existing billions (election funds are merely drops in their oceans of corruption) and 'transport' to whisk away their spoils of what else, highway robbery!

Building roads (with built-in potholes to ensure more is spent on maintenance than the original construction) will ensure that everyone in power gets their cut. That, I think, is the real focus and not catching up with US or China.


Mohana murali

Jul 27, 2010

A very excellent point about how we lack future
planning like 20 years later 30 years later etc

before doing such a great investment indian team
should visit countries like japan and understand
how they plan for long term.

Please send your points to planning team and ministries.



Jul 27, 2010

In US specially the auto/oil lobby has not allowed the public transport to come up. I thought in India we have not reached that stage for the auto lobby and we should be spending on trains and other public transport to avoid over dependency on oil import and let the auto/oil lobby get strong. But seems like we are headed that dreaded path, unfortunately.


R. Balakrishnan

Jul 27, 2010

You are right. I always have been wondering. Every year while presenting Railway budget it is usual to inform that railways are earning more from freights rather than from transportation of passengers. But no plan is made either to put up separate lines for goods transport or exclusive stations for goods transport. If it is done, similar to your thinking of passenger transport through rail, fuel spent on goods transport and pollution shall come down drastically. Hence we should plan more rail lines.
While going by train you can see a lot of unused lose rails. If it is properly accounted and used, I feel we can make equivalent to another about 25 to 30 % of existing rail lines.

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