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The road ahead

The telecom industry attracted considerable foreign investment because of the emerging demand and the liberalised policy that made investment possible and profitable, writes KK Birla.

india Updated: Aug 09, 2006 03:04 IST

In the last 10 years, telecommunication has made fabulous progress in India. After the new telecom policy in 1999, the industry witnessed a virtual transformation of this sector. The advent of mobile telephony also caused a veritable revolution. The entry of the private sector in mobile services in 1992 and in basic services in 1994 provided a tremendous boost. Telecom reforms also greatly supported the phenomenal growth of the IT sector. The number of phones shot up from 22.8 million four-five years ago to 105.2 million in 2004. Teledensity improved from 2.3 per cent to nearly 10 per cent. The progress in mobile telephony, in particular, has been brisk. The growth in the year ending August 2005 was 52.7 per cent. The telecom sector has also entered rural areas in a big way.

Despite this progress, India’s telephone density is much lower than in China or Brazil. These two-year-old figures give an idea:

............Teledensity (Dec 2003)

Australia 126
Brazil 42
China 42
Sri Lanka 9.6
Britain 143
US 116
India 10

The telecom industry attracted considerable foreign investment because of the emerging demand and the liberalised policy that made investment possible and profitable. Between 2001 and 2004, the total FDI in telecom has been Rs 5,763 crore. From July this year, telephone rates have again been revised, making the rates in India the lowest in the world. Even after charging such low rates, the industry has proved to be remarkably profitable. It’s satisfying that some of the largest industrial houses in the country — the Tatas, the Birlas (Aditya Birla Group), the Ambanis and the Mittals — have entered this field along with foreign majors. Public sector majors like BSNL and MTNL are also expanding their activities very fast.

ROAD CONSTRUCTION: Good smooth roads where cars and trucks can be driven effortlessly are essential for the country’s economy. Today, 85 per cent of passenger traffic and 70 per cent of goods traffic flows on roads. However, the quality of roads is very poor and there is considerable scope for their upgradation.

Our road network is made up of 3.3 million km, the second largest road network in the world. This network consists of national highways (65,569 km), state highways and district roads (598,000 km) and rural roads (2,650,000 km). Although highways make up only about 2 per cent of the total road network, they carry about 40 per cent of the total road traffic. The poor quality of the roads, however, makes fast traffic impossible.

The government has initiated measures to facilitate road construction. It provides a capital grant equal to 40 per cent of the project cost, duty free imports of modern equipment, etc. Even so, progress is slow mainly because of delays in land acquisition, law and order problems, and the poor performance of some contractors. Under Phase III of the National Highway Development Project (NHDP), covering 14,279 km of highways, about 10,000 km of roads are to be widened from two- to four-lane roads with paved shoulders at an estimated cost of Rs 60,000 crore on BOT (Build, Operate, Transfer) basis. This will provide connectivity to all state capitals.

The project, funded from fuel tax and tolls, consists of the Golden Quadrilateral (5,846 km), the North-South and East-West Corridor (7,300 km) and the Port Connectivity (1,133 km). The different projects, when completed, will provide excellent connectivity within the country. What is crucial is that the projects are completed in time. The Golden Quadrilateral will connect the four metro cities of Delhi, Mumbai, Chennai and Kolkata and is expected to be completed by early 2007. The North-South and East-West corridors connecting Srinagar to Kanyakumari and Silchar to Porbandar respectively will be completed by end-2006.

The bulk of the roads in India are rural roads. These are in pitiable conditions. Primarily, it is the responsibility of the state governments to improve rural roads. In the last three years, some progress has been made in some states. Bihar, unfortunately, is the worst state in this sector. With the change of government in Patna, it is expected that rapid progress will be made towards the construction of rural roads in Bihar.

In road construction work, several foreign companies from Thailand, Korea, Malaysia and Japan have shown interest. Roads and highways in all these countries are of very high quality. These companies come with rich experience, many of them having already succeeded in undertaking projects floated by the National Highways Authority of India (NHAI) and road construction projects floated by state governments.

In the 2006-07 Budget, a provision of Rs 600 billion (from diesel cess) under the Pradhan Mantri Gram Sadak Yojna has been made to connect villages with a population of over 500 people to main roads (numbering about 1.7 lakh habitations). Around 62 per cent of the work has been completed. This figure would have been even higher but for the completion rate being less than 50 per cent in 10 states. Work is more than 70 per cent complete in five states, with Andhra Pradesh already having completed 95 per cent of the work. The earlier deadline of 2007 has now been shifted to 2011. It is good to find that cities like Delhi, Mumbai, Kolkata and Bangalore are constructing flyover networks for a smoother flow of heavy traffic.

RAILWAYS MODERNISATION: The development of roads has to go hand in hand with the modernisation of railways. Our railway network is one of the largest in the world, covering 63,221 route km. This is made up of broad gauge (45,622 route km), metre gauge (14,354 route km) and narrow gauge (3,136 route km).

About 26 per cent of the railway network is electrified. Railways purchase power directly from the producers. The passenger reservation system, the largest in the world, is accessible through internet and connects 2,500 terminals. The computerised Freight Operation Information System enables online information of cargo.

Road and rail systems are complementary. The cost of carrying goods over long distances by rail is one-fourth the cost of carrying goods by road. However, with the modernisation and upgradation of roads, the cost disparities is expected to be greatly reduced. Nevertheless, for bulk commodities like coal, cement, steel, etc, the railways will remain the most economical mode of transportation. There is, however, a lot of scope for improvement in economising the railways. All sections of the railways are heavily over-staffed. This is an unnecessary waste of money. We should study the Japanese railway working system and try to modernise our rail system on those lines.

The railways have to lay new lines, convert metre gauge into broad gauge, electrify most of the system, institute safety devices to avoid accidents and keep up with the latest technologies in convenience and speed. Lalu Prasad Yadav has done a remarkable job as the Railway Minister. He has been one of the best Rail Ministers in recent times.

PORT FACILITIES: India has over 7,000 km of natural peninsular coastal lines. There are 13 major ports and 185 minor ports. The major ports are under the control of the Centre and the minor ports under the states, the latter handling about 25 per cent of the total business.

Of the total external trade, maritime transport accounts for 95 per cent in volume and 70 per cent in value. The total cargo handled in 2003-04 was 389.5 MMT. Traffic at major ports is increasing at a rate of more than 10 per cent annually.

With the mechanisation of ports, the average turnaround of ships has come down from 5.7 days in 1999 to 3.5 days in 2004. The government has sold the right to operate some of the ports and terminals to the private sector. Private ports and terminals now handle about a third of the country’s cargo. The turnaround has been of only 12 hours. Hence privatisation of port operations must be carried on more speedily. Foreign trade is increasing at the rate of 30 per cent per year (in value terms). So it’s necessary that port facilities increase fast to catch up with the volume of goods to be moved. Private ports and joint ventures should be sponsored and facilitated. The government should also corporatise the major ports currently managed by port trusts.

The government has announced a series of measures to encourage foreign investment in this sector. One hundred per cent foreign investment is permitted for construction and maintenance of ports and harbours. The government is offering incentives to private investors (10 years’ tax holiday in port development, operation and maintenance, etc).

Permission has also been granted to private parties to set up import-purpose minor ports. The private sector has responded to these incentives, and its participation is increasing in major and minor ports.

AIRPORTS: More and more people are taking to air travel in preference to road or rail travel. Our airports, however, are far below world standards. Airport buildings, facilities, runways, all need complete rejuvenation. It is shocking to see that for internal flights, aerobridge facilities are not available even in Delhi and Mumbai. December and January flights are often disturbed owing to fog. In developed countries such delays don’t occur as there are arrangements for instrument landing. The government has been assuring the public that necessary steps are being taken to introduce instrument landing in all the major cities. But instrument landing is being inexplicably delayed year after year. For instrument landing, the pilots will be required to undergo special training. That is not difficult. The government has to proceed with dedicated determination.

India has 125 airports handling 4 million passengers of which 11 are international, 86 domestic and 28 civil enclaves. Delhi and Mumbai account for around half of the total traffic. Passenger and cargo traffic in the last decade has grown at an average rate of 9 per cent. Currently, more than 40 per cent of India’s export and import cargo by value is carried by air.

The sector is growing at the rate of about 20 per cent a year and this rate of increase will continue for another 4-5 years. Current policy reforms allow private equity participation in development of the airport infrastructure. Foreign equity participation of up to 49 per cent has been permitted for the privatisation of Delhi and Mumbai airports. The government has realised that private sector participation is a major thrust area in the civil aviation sector.

For green-field airports, private sector participation is proposed for Bangalore and Hyderabad. Private sector participation up to 74 per cent in joint ventures has been approved. The remaining 26 per cent is being shared by the state government and the Airports Authority.

Upgradation and modernisation of Mumbai and Delhi airports will cost around Rs 15,000 crore. The government has taken the right decision in privatising Delhi and Mumbai airports. It should move fast and try to privatise other airports too. The government has made plans to restructure the Kolkata and Chennai airports. For Kolkata airport, the AAI has already announced a modernisation programme costing Rs 130 crore. The setting up of a Civil Aviation Authority (CAA) has been proposed as an independent regulator.

Indian private airlines have benefited from the permission granted by the government allowing them to fly to all Saarc countries. Some airlines like Jet, Air Sahara and Air Deccan have started operating on some of these routes. A decision has also been taken to allow the private sector to fly to the Gulf region.

This sector is growing rapidly and there is a vast potential. The number of domestic passengers is likely to increase from 12 million in 1996-97 to 53.3 million in 2016-17. The number of international passengers is likely to increase from 10.9 to 33 million. The requirements of funds will be between $ 20 and 30 billion in the next 5-10 years.

(To be continued)
The writer is a former Rajya Sabha member

First Published: Aug 09, 2006 03:04 IST