Underperforming and underinvested, India’s infrastructure needs transformation

Ashraf Engineer

November 5, 2022

EPISODE TRANSCRIPT

Hello and welcome to All Indians Matter. I am Ashraf Engineer.

The collapse of the bridge in Morbi, Gujarat, that killed at least 135 people and the frequent accidents befalling the Vande Bharat Express got me thinking about the quality of infrastructure in India. Over the past few years, there’s been a lot of emphasis on creating infrastructure, from transport to power and everything in between. But its frequent failure is a drag on economic growth and an obstacle to business, investment and even social progress. Our creaking infrastructure desperately needs an overhaul.

SIGNATURE TUNE

India’s population of 1.3 billion adds to the strain on infrastructure but it also underscores the need for more investment in it. After all, infra is critical for improving manufacturing competitiveness and achieving higher growth. Without it, missions like Make in India will remain mere slogans. Of course, on-time execution with adequate quality checks and funding are critical too.

The fact is infrastructure has suffered from underinvestment for years. That has left us with bad roads – where there are roads – and poorly functioning or absent railway stations, airports, telecom connectivity and power supply. In fact, businesses have long cited poor infrastructure as the greatest hurdle to their functioning.

Successful infrastructure development, on the other hand, can boost virtually all sectors, especially high employment generating ones like real estate, automobiles, steel and cement.

Coming back to Make in India, poor infrastructure is the biggest challenge before it. The programme aims to put manufacturing in high-power mode and thus employment too. But growth and investments will be obstructed if the government fails to close the infrastructure gap. Some experts say that will need investments of 4% to 5% of GDP. Does the government have the will to do that?

Key manufacturing hubs have struggled. By comparison, China’s hubs benefit from strong infrastructure and limited need for inland transport. This is what makes its exports more competitive.

This government’s performance on infra has been patchy. For instance, grand announcements were made about creating smart cities. What happened on that front? High-speed trains were announced but they keep hitting cattle. Announcements rather than execution seems to be the strong suit.

One solution could be more public-private partnerships in large projects but private industry will need to be given the confidence that there will be total transparency, no execution hurdles and absolutely no corruption. Another argument in favour of private-sector investments is that it reduces the debt burden on the government. And there are significant opportunities for private industry in construction, transport and technology.

However, there are challenges in the form of funding constraints, land acquisition delays, approvals and shortage of skilled manpower. Land acquisition, in particular, is a major problem and several projects have stalled because of delays in it. Private-sector investments will come so long as the government is willing to make projects commercially viable and to share the risks involved, such as land acquisition.

Here are a few things India could do:

  • First, figure out where the government is needed and where the private sector could do better. The government could focus on areas like public health and providing capital for projects that are not attractive to private investors.
  • The upside of India’s poor performance is that we are not as burdened by legacy infrastructure. So, instead of progressing from one technology upgrade to another, India can adopt the latest technologies faster. For example, focusing on solar and other renewable energy sources reduces the need for a centralised grid and can help us achieve our emission reduction commitments.
  • Focus on execution, not just on attracting investment. India has a high savings rate, and insurance companies and pension funds want to invest in infra. So do international funds and development banks. What’s missing is structure and transparency. Corruption is entrenched and, so long as it remains so, attracting investors will be tough. Also, the timely completion of projects requires monitoring and course corrections. Such monitoring systematically collects data; it’s a demanding task that has been neglected. This needs to change because without it you cannot have effective implementation.

Though India tends to be less vulnerable to global economic shocks, growth will not fall below a certain threshold. This makes India an attractive investment destination in times of global economic uncertainty, which we are experiencing to some extent and which is expected to increase next year. If the government takes the right steps, hesitation to invest can be allayed.

India needs resolute commitment to infrastructure development without which we will continue to drift along without having the foundation for a high-growth path and the quality impact that we need from our infrastructure on incomes, business and social upliftment.

Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.