Executive
Summary
Indian still receive infrastructure services largely through public entities – Usually part of a government department. Because those services are erratic , Indian businesses routinely provide their own power and water. The World Economic Forum’s 1998 Global Competitiveness Report, a business survey of international investors, ranked India last among 53 countries in the quality of overall infrastructure , if the provision of high quality , reliable and reasonably priced infrastructure services continues to be inadequate, It will be a major drag on economic growth in India. The expected increase in demand for infrastructure services points to the need for augmenting capacity and improving efficiency in all areas. The Expert Group on the Commercialization of Infrastructure Projects estimates that India needs to invest $ 115 billion to $130 billion in infrastructure from 1996-2001 , and $ 215 billion in 2001-2006 (NCAER 1996). Achieving this investment will require major policy reforms. Looking ahead, private sector participation in infrastructure is an important focus of India’s Ninth Five-Year Plan for 1997-2001. The government also has established a high –level task force to attract investment-including private funds-to projects of national and regional importance. The task force is concentrating on developing expressways, adding lanes to national highways, and building five world-class international airports. The full potential of the private sector to meet India’s pressing infrastructure needs is largely untapped. With few exceptions (principally in the power sector in the states of Orissa) , there has been little divestiture of existing assets. The private sector has built new infrastructure, such as independent power projects and new port sites, and established new companies that compete with public operators, particularly in the telecommunications sector. However , the productivity and efficiency improvements that private management and ownership could introduce to existing public sector service provides- under an appropriate regulatory regime and with competition when possible –would help to relive some of the current infrastructure constraints. India has started to restructure government , roles in power-particularly by separating operations from policy and regulation. This has occurred to a lesser extent in telecommunications and posts . In other sectors the process is incomplete or has not yet begun. This separation of roles and the creation of independent regulatory agencies will be particularly important where there is competition between private and publicly owned service providers –and when there is a need to insulate tariffs from political pressure. Telecommunications The entry of private operators into the telecommunication sector indicates great potential for competition and private investment. But market structure and license conditions have undermined incentives for large investments and new entry. Teledensity remains extremely low (table1) .The New Telecom policy, unveiled in March 1999 provides a platform for further development and liberalization of the sector.. It envisions a more competitive market for all telecommunications services. Key issues.
Power State electricity boards are an increasing financial drain on their governments. They have low average tariffs, with high cross-subsidies to agricultural and residential consumers, and suffer from poor management, high levels of theft of power, and a large volume of uncollected bills (table 2). This has lead to capacity shortages, poor system reliability , and frequent blackouts. Despite government steps to introduce private sector investment in generation, the poor financial standing of most boards means that far fewer deals have reached financial closure than expected. Key issues.
Urban Water and Municipal Service. No large privately sponsored projects have yet reached financial closure in the water and sewerage sector, which is handicapped by inadequate revenues and a cumbersome institutional approach (table 3) . Central , State, and city governments have been providing and regulating services . The goal of the 74th Amendment to the constitutions is to move toward municipal management of urban water services, but the process is in the early stages. Although several bulk water schemes are under consideration , they are likely to prove viable only when supported by sales to industrial consumers or when the municipality has strong finances. Poor management of existing networks suggests that efficiency could be improved greatly by introducing private operators and measures to provide an adequate revenue stream.
Failure
to provide water of adequate quantity and quality is a major cause of
death and illness in India, often resulting in epidemics. An estimated 12
percent of premature deaths and disabilities in India are due to
water-related infections, primarily diarrheal disease, hepatitis, and
parasitic infections., with the proportion rising to about one-fifth of
all causes of death among children . That translates into about half a
million deaths in children under five each year (based on India 1996). Key
Issues.
Roads Small projects, like bridge and bypass construction, have been privately financed, but larger projects have not. Just 4 percent of national highways have four lanes. Only 20 percent of paved roads and considered to be in good condition , and may roads cannot cope with increasing traffic volumes (India, Planning Commission 1999) . The government
has begun introducing tolls on newly expanded stretches of road,
and the number toll roads, bridges and bypasses will increase . The
government plans to upgrade the national highway network and include the
private sector, Key issues for central and state governments:
Ports Indian port productivity is extremely low by international standards. Unless the productivity and capacity of ports are increased, more bottlenecks will occur as demand for port services grows. The Ministry for Surface Transport oversees the country’s 11 major ports, for which the Tariff Authority for Major Ports regulates prices. The other 142 ports come under state jurisdiction. The central government has adopted broad policy measures to open ports to private investors and operators. Some maritime states are also attracting private investments. The central government is seeking private investment in captive and other facilities , and state government are seeking private investment, largely in new sites Key issues :-
Airports
Passenger traffic is concentrated at Bangalore, Calcutta , Chennai, Delhi and Mumbai. All of these airports are operated by the Airports Authority of India. Major investments in airports are needed to bring existing facilities up to international standards and to handle the expected increase in passenger and cargo. One project with private sector participation was recently commissioned in Cochin, Kerala. To set the stage for more private sector participation , the government is planning to lease operations at the Calcutta, Chennai, Delhi, and Mumbai airports, Key Issues.
Developing
Regulatory Institutions. A
growing number of special economic regulatory agencies in India oversee
power, telecommunications and ports. Their experience provides lessons
about the political economy of infrastructure regulation in India and
about the design of regulatory bodies to ensure that they fulfill their
mandate as independent regulators.
Promoting
Domestic Infrastructure Finance
India
has a relatively high savings rate of more than 25 percent , but the term
of loans available for infrastructure projects is still relatively short.
The number of providers of long -term debt is limited: these providers
have similar incentives and investment patterns, and the regulatory system
constrains the willingness of lenders to provide financing for
infrastructure projects. The development of a secondary market for debt is
also somewhat constrained by existing taxes and regulations . These
factors are reflected in India's relatively large primary debt market, but
light secondary market trading. Key issues :
Improving
the Public -Private Interface Although public investment in infrastructure has declined as a percentage of gross domestic product (GDP since the start of the decade, private investment has failed to fill the gap. As a result, total investment in infrastructure, as a percentage of GDP, is below the levels of 1991-93 (table 4).
The increasing emphasis on private provision of infrastructure services is placing new demands on the public sector's contracting and supervision skills. The situation frequently result in the bidding of projects that have been inadequately prepared .There is a need for greater interministerial coordination at the central and state levels. This need is also highlighted by constrains on private sector developers , particularly in the power sector where many public and private sector actors are involved. Policy recommendations:
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