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Roadblocks on the highway

India’s GDP rate will be bruised badly if we don’t crank up our infrastructure capacity.

india Updated: Mar 24, 2010 21:27 IST

India is seriously falling back in building infrastructure. The mid-term appraisal of the five-year plan that runs till 2012 notes that every second project is running late and ambitions have been pruned in electricity generation, highway building and rail and port capacity. We will end up spending the $514 billion we had set out to, but this expenditure will yield a disproportionately lower physical outcome because of a $70 billion cost overrun. Three in four respondents in a recent KPMG survey blamed material cost escalation, design changes and scope creep for these overruns. One in three said regulatory hold-ups, land acquisition and weak monitoring were the main reasons for delays. None of these issues is exactly new. And in all but material costs the government plays a crucial role.

In fact, the rare success story in Indian infrastructure — telecommunications — has telling lessons for our planners. Investment in an intensely competitive industry with a regulator in place is a third higher than what the wonks thought would be possible in 2007-12. In the bargain, the target of 15 per cent teledensity was reached three years ahead of schedule. It is no coincidence that 80 per cent of investments in the sector are being made by private companies. The proverbial penny seems to have dropped, private investment in infrastructure overall is now being projected to grow from a third today to over half by 2015. For this to happen, the government must upend the way it thinks about private partnership in infrastructure projects.

The next five-year plan is likely to double infrastructure spending to $1 trillion, but this will come at a time when the rest of Asia is furiously building its infrastructure while the US and parts of Europe rebuild capacities set up half a century ago. Demand for projects — and materials and men — is increasing at an alarming pace across the globe. India does not have the luxury of leisurely regulatory transformation. A business-as-usual approach in infrastructure could cost India as much as a tenth of its potential GDP in the second half of the decade. A 10 per cent growth rate for the economy over the next five-year plan is meaningless unless we crank up infrastructure capacity. Our planners see the shift in the roles of the State and the market; their skill lies now in convincing policy-makers of the change they need to bring into their mindsets.