INDIA CAN DO BUT WHAT ABOUT INFRASTRUCTURE?

CYBER AGE

India’s infrastructural woes
From The Statesman
BY ND BATRA

In the early 1990s, power generation was thrown open to the private sector but India still suffers from frequent blackouts and brownouts, which makes me wonder whether the goal of electric power for everyone in the country by 2012 would be easily reached. It was thought that if you opened up the economy, investors would come in droves; but foreign investors don’t seem to be attracted to risking their capital in the power sector.

Without eliminating chronic power shortages, India would find it difficult to attract foreign investment in the newly approved special economic zones (SEZs) and continue falling behind China in economic growth. There is just not enough power available but wherever it is available the supply is not reliable. Industrial states like Maharashtra and Karnataka, for example, encounter four-eight hours of power outage in peak months.

Power theft, transmission and distribution losses, and other technical problems drain 40 per cent of power. Half the rural population is still without electricity. According to experts, India needs to add 10,000 megawatts of electricity per year for the next decade, which would require an investment of $180 billion, a great opportunity for the private sector if the investment climate is made attractive.

But how do you rebuild the confidence of the investor after what happened to the $2.9 billion Dabhol power plant, originally backed by Enron Corp, one of the biggest foreign investment projects in the country? The Maharashtra State Electricity Board, which like most other state public utilities, has been run like a public charity, could not afford to pay contractual Dabhol rates, and the plant was closed. It was a monumental embarrassment that this kind of failure in foreign collaboration should have occurred in India’s most industrialised state, which contributes 25 per cent to India’s GDP and has the potential to rival California.

Privatisation of production is meaningless unless producers are allowed to make a fair return on their investment. Multinational corporations invest to make money for their shareholders. They are not interested in giving free or subsidised power to farmers, however socially desirable that may be. But there is light at the end of the tunnel. GE and the construction firm Bechtel Group, which bought Enron’s majority interest in Dabhol after the scandal-struck US company went belly up, are in the final stages of negotiation to sell their majority stakes to a consortium of Indian financial institutions. The consortium would reportedly turn over the management to the National Thermal Power Corp. and Gas Authority of India and the power plant might be working soon.

The revival of the moribund power plant would be a confidence-building measure and would hopefully attract more investment in the power field.

India’s need for investment in electric power is fathomless; and so is the case with harbours, airports, drinking water, railroads and highways in order for an 8-10 per cent economic growth, which is necessary to create employment opportunities for a growing youth population - India’s greatest asset.

Most high-strung nationalists and economic experts think in terms of India’s place in the world economy; for example, where India would be vis-à-vis China, Japan or the USA in the next 10 years. But they are missing the point, as did the Vajpayee government, that: The immediate goal of rapid economic growth and its ultimate measure is poverty reduction by generating opportunities for employment, especially for the rural population, about 600 million, which mostly depend upon agriculture.

An indifferent monsoon casts a grim shadow on the rural landscape. Rural India should not continue to be a hostage to nature’s vagaries.

India’s rural population is too heavily dependent upon agriculture. Most of the rural workers should be absorbed into agro-industries, manufacturing and service industries, and that again would necessitate massive investment in building new infrastructure and modernising the existing one.

A case in point is the Mumbai Trans-Harbour bridge, connecting Mumbai to Navi Mumbai. It should have been completed two decades ago. To suggest that it is party politics or the slowness of democracy that prevents projects of such magnitude to be completed on time is poor thinking.

Retarded political behaviour is not the essence of democracy; otherwise the USA would have been a Third World country. It is freedom with accountability that makes the USA a nation in perpetual motion.

Poor infrastructure adds to the cost of production and that’s one reason why India finds it difficult to compete with Asian countries like Singapore, South Korea, Taiwan and China, for example. At times it seems that India is like a giant stuck in a swamp, struggling to get out.

But if the challenge-response theory has any merit, India has no choice but to get out of the swamp, upgrade its clogged roads and overcrowded airports, eliminate frequent power outages and scuttle the red tape. Growing prosperity in India and rising expectations abroad “that India can do” are creating compelling conditions for the government to put its act together.

India’s software and outsourcing industry has been quite ingenious in transcending the poverty of infrastructure by building its own captive power plants and establishing satellite communications with its clients abroad. But to expand the manufacturing base for domestic employment and for export, India has little choice but to modernise its infrastructure, and the most efficient way is through a combination of public and private investments.

It is no longer a question of survival but building “The New India” about which Prime Minister Manmohan Singh recently wrote in The Wall Street Journal.