With the market departing into a tailspin, infrastructure can become the engine expected to pull India out of the woods.
According to the Ernst & Young-FICCI report titled speed up execution of infrastructure projects report, “Infrastructure facilities like roads, railways, and ports under-achieved their investment targets in the 11th plan by 11 percent, 23 percent and 54 percent, correspondingly. Generally savings intention have been attain simply due to burly act by telecom (34 percent) and oil and gas (655 percent) sectors”.
The story cited a small amount of obstruction affect sensible execution of projects counting land acquisition, regulatory approvals, funding, lack of skilled manpower and lack of construction equipment.
According to the Ernst & Young-FICCI report titled speed up execution of infrastructure projects report, “Infrastructure facilities like roads, railways, and ports under-achieved their investment targets in the 11th plan by 11 percent, 23 percent and 54 percent, correspondingly. Generally savings intention have been attain simply due to burly act by telecom (34 percent) and oil and gas (655 percent) sectors”.
The story cited a small amount of obstruction affect sensible execution of projects counting land acquisition, regulatory approvals, funding, lack of skilled manpower and lack of construction equipment.
Referring to limitation in railways, the report pointed out that the split of passenger movement by rail declined from 74 percent in 1950s to present levels of 13 percent, and for the similar time, the share of freight movement dropped from 86 percent to 39 percent.
Challenges and Outlook
The key to global competitiveness of the Indian economy lies in building world class infrastructure and service delivery at competitive rates. The realization of investment targets for infrastructure during the Eleventh Plan gives hope that the financing of an even more ambitious Twelfth Plan target may be possible. Private-sector participation in financing of infrastructure has also generated optimism that public funding need not necessarily be the exclusive route for infrastructure investment. A conducive environment for private sector participation with a transparent and credible regulatory mechanism, therefore, could reduce the pressure on public-sector funding.
Sectoral analysis of private-sector participation in infrastructure during the Eleventh Plan also indicates that sectors such as irrigation, railways, water supply and sanitation, ports, and power distribution have not generated the desired enthusiasm and attracted the desired level of private investment. It is, therefore, imperative to identify hurdles and weaknesses in regulatory, financing, and incentive structure (both taxation and debt) and project implementation-related issues that may be inhibiting private investment into these sectors.
Energy sector
One of the foremost challenges in the coming years is to meet the energy requirement. The Twelfth Plan projections made by the Planning Commission indicate that for a GDP growth rate of 9 per cent per year, energy supply has to grow at around 6.5 per cent per year. The ability to meet the energy requirement would depend upon our ability to expand domestic production in the critical sub-sectors such as petroleum, natural gas, and coal, and meeting the balance requirement through imports. Reforms are necessary in the energy-pricing policy.
Power generation
The demand for grid power is estimated to grow by 6 per cent per annum by the end of the Twelfth Plan. Capacity addition in the power sector would be about 50,000 to 52,000 MW during the Eleventh Plan. In order to achieve the projected capacity addition of 1, 03,300 MW and build commensurate transmission and distribution capacity, investment to the tune of Rs 11, 18,375 crore would be needed. Apart from the financing issue, the power sector would be constrained by shortage of fuel and environmental issues. Mismatch in coal supply and shortage of gas for the power sector have been impacting the output presently. Delay in forest and environmental clearance in particular for hydro- based power projects has delayed capacity addition. There are financial health and viability issues across the entire spectrum of power sector–generation, transmission, and distribution. Viability of the players in power sector would require either the adjustments of the user charges in line with the cost of providing access to these services or an adjustment in the subsidy levels.
Railways sector
Capacity addition in the railways sector remains the key challenge for coming years. The sector has huge opportunity to grow and the rail share in cargo and passenger services can increase significantly. Its current share of freight traffic in India is only about 36 per cent as compared to about 50 per cent in the US and China. Due to capacity constraints, Indian Railways is unable to offer value-added services. There is need for a paradigm shift in building rail infrastructure and running rail services.
Urban infrastructure
Urban population is projected to increase to 598 million in the year 2031 and the share of urban population is projected to increase from 31.2 per cent in 2011 to about 40 percent in 2030. Continued demographic shift from rural to urban areas and rapid urbanization are posing a huge challenge in terms of creation and maintenance of minimum level of infrastructure and services. There is need to upgrade urban infrastructure such as water supply, sewerage, solid waste management, urban roads, storm water drains, urban transport, traffic support infrastructure, and street lighting. At present only about 74 per cent of urban population is supplied piped water, less than two-thirds of urban population in Class I and Class II towns is connected to the sewer system, scientific treatment and disposal of solid waste is practically non-existent, and public transport accounts for only 22 per cent of urban transport in the country. Urban India is deficient in service delivery and the quality of service leaves much to be desired. ULBs are under financial stress and also suffer on account of poor governance.
In order to achieve the services norms for eight infrastructure sectors adopted by the Ministry of Urban Development, investment from the base year (2011-12) of about Rs 51,000 core would need to be stepped up at the rate of 15 per cent per annum during the Twelfth Plan tapering off to 12 per cent per annum during Thirteenth Plan and 8 per cent per annum thereafter.
The key to global competitiveness of the Indian economy lies in building world class infrastructure and service delivery at competitive rates. The realization of investment targets for infrastructure during the Eleventh Plan gives hope that the financing of an even more ambitious Twelfth Plan target may be possible. Private-sector participation in financing of infrastructure has also generated optimism that public funding need not necessarily be the exclusive route for infrastructure investment. A conducive environment for private sector participation with a transparent and credible regulatory mechanism, therefore, could reduce the pressure on public-sector funding.
Sectoral analysis of private-sector participation in infrastructure during the Eleventh Plan also indicates that sectors such as irrigation, railways, water supply and sanitation, ports, and power distribution have not generated the desired enthusiasm and attracted the desired level of private investment. It is, therefore, imperative to identify hurdles and weaknesses in regulatory, financing, and incentive structure (both taxation and debt) and project implementation-related issues that may be inhibiting private investment into these sectors.
Energy sector
One of the foremost challenges in the coming years is to meet the energy requirement. The Twelfth Plan projections made by the Planning Commission indicate that for a GDP growth rate of 9 per cent per year, energy supply has to grow at around 6.5 per cent per year. The ability to meet the energy requirement would depend upon our ability to expand domestic production in the critical sub-sectors such as petroleum, natural gas, and coal, and meeting the balance requirement through imports. Reforms are necessary in the energy-pricing policy.
Power generation
The demand for grid power is estimated to grow by 6 per cent per annum by the end of the Twelfth Plan. Capacity addition in the power sector would be about 50,000 to 52,000 MW during the Eleventh Plan. In order to achieve the projected capacity addition of 1, 03,300 MW and build commensurate transmission and distribution capacity, investment to the tune of Rs 11, 18,375 crore would be needed. Apart from the financing issue, the power sector would be constrained by shortage of fuel and environmental issues. Mismatch in coal supply and shortage of gas for the power sector have been impacting the output presently. Delay in forest and environmental clearance in particular for hydro- based power projects has delayed capacity addition. There are financial health and viability issues across the entire spectrum of power sector–generation, transmission, and distribution. Viability of the players in power sector would require either the adjustments of the user charges in line with the cost of providing access to these services or an adjustment in the subsidy levels.
Railways sector
Capacity addition in the railways sector remains the key challenge for coming years. The sector has huge opportunity to grow and the rail share in cargo and passenger services can increase significantly. Its current share of freight traffic in India is only about 36 per cent as compared to about 50 per cent in the US and China. Due to capacity constraints, Indian Railways is unable to offer value-added services. There is need for a paradigm shift in building rail infrastructure and running rail services.
Urban infrastructure
Urban population is projected to increase to 598 million in the year 2031 and the share of urban population is projected to increase from 31.2 per cent in 2011 to about 40 percent in 2030. Continued demographic shift from rural to urban areas and rapid urbanization are posing a huge challenge in terms of creation and maintenance of minimum level of infrastructure and services. There is need to upgrade urban infrastructure such as water supply, sewerage, solid waste management, urban roads, storm water drains, urban transport, traffic support infrastructure, and street lighting. At present only about 74 per cent of urban population is supplied piped water, less than two-thirds of urban population in Class I and Class II towns is connected to the sewer system, scientific treatment and disposal of solid waste is practically non-existent, and public transport accounts for only 22 per cent of urban transport in the country. Urban India is deficient in service delivery and the quality of service leaves much to be desired. ULBs are under financial stress and also suffer on account of poor governance.
In order to achieve the services norms for eight infrastructure sectors adopted by the Ministry of Urban Development, investment from the base year (2011-12) of about Rs 51,000 core would need to be stepped up at the rate of 15 per cent per annum during the Twelfth Plan tapering off to 12 per cent per annum during Thirteenth Plan and 8 per cent per annum thereafter.
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