27

Infrastructure Development in India

V. R. Prabhakaran Nair

27.1 Introduction

Infrastructure, both economic and social, plays a crucial role in determining the prosperity of an economy by enhancing the productive capacity in a self-accelerating process of economic development. While agricultural development requires irrigation, power, credit and transport facilities, factors like machinery and equipment, skilled manpower, management, energy, growth of banking, marketing facilities, transport development including roads, railways and shipping, and communication facilities are important for industrial growth. Thus, the term ‘infrastructure’ is used to represent all these activities that facilitate the working of an economy. While keeping diversity in services, infrastructural activities share among themselves similar technical features such as economies of scale in terms of decreasing cost with increase in output and other economic advantages such as spillovers from users to non-users. The facilitating role of infrastructure in economic growth helps to define infrastructure as the capital of an economy that is embodied in such forms to manage direct productive activities. Infrastructure as a component of the capital stock promotes development by linking the production-points with input-supplies including labour through transport, communications, etc. The infrastructure development enhances and diversifies the production structure in accordance with changes in technology and demand in the economy. Huge investment in terms of the social overhead capital is regarded as crucial directly for productive activities in the theoretical models of ‘Big Push’ and ‘Unbalanced Growth’. The investment needed to provide the infrastructural services is characterized by lumpiness. Lumpiness means that, owing to technical indivisibilities, large investments rather than small incremental investments are needed to provide the services much ahead of demand. One may widen the term infrastructure to include health, education, skill, knowledge, etc., to call it as the ‘social over head capital’. According to the World Development Report (1994) ‘the term infrastructure is an umbrella term for many activities referred to as ‘social overhead capital’ by development economists such as Paul Rosenstein-Rodan, Ragnar Nurkse and Albert Hirschman. Its linkages with the economy are multiple and complex, because it affects production and consumption directly as well as indirectly, creates positive and negative spillover effects (externalities) and involves large flow of expenditure’. This chapter discusses the growth of infrastructure with a special reference to recent policy initiatives undertaken to develop the sector.

27.2 Infrastructure in India: Present Scenario

Indian planners were forced to give infrastructure a prominent place after the recognition of the most-beneficial impact of investment in infrastructure, that is, a multiplier effect through the expenditure incurred in the form of wages and inputs, and the resultant derived demand for output for other sectors in the economy forced the Indian planners to give infrastructure development a prominent place in economic growth. As a result, infrastructure received special attention right from the First Five Year Plan. From then onwards, there was phenomenal increase in infrastructural facilities in India. However, its supply generally has not been adequate since there is a gap between the aggregate supply of physical infrastructure and the aggregate demand for it. The infrastructure has been dominated by the government control with state-owned undertakings operating in all subsectors.

Table 27.1 gives the trends in the growth of various infrastructural facilities viz. transport (roads, railways, seaports and airports) and telecom since 1951. It is seen that except railways, the other sectors have grown tremendously in terms of network over the years. Among these, the expansion of telecom facilities was the most significant one. It is worth mentioning that after 1991 infrastructural facilities registered a higher pace in growth compared to the early decades. This may be due to the policy initiatives adopted as a part of new economic policy in 1991 to provide better infrastructural facilities to achieve higher growth and competitiveness. There has been considerable progress in the last 10 years in attracting private investment into infrastructure sectors: first in telecommunications, then in ports and roads, and in individual projects in other sectors. Nevertheless, India is still facing the problem of a supply-side deficit. Considering this fact, the total investment required in infrastructure during the Tenth Five Year Plan, initially projected at Rs 1,089,400 crore, has been revised to Rs 1,108,800 crore in the mid-term appraisal of the Tenth Plan. The committee on infrastructure, headed by the prime minister, has estimated the investment requirements as Rs 172,000 crore in the National Highways sector by 2012; Rs 40,000 crores for airports by 2010; and Rs 50,000 crores for ports by 2012. A substantial share of this investment is expected to come from the private sector. It has also been estimated that India has the potential to absorb US$ 150 billion of Foreign Direct Investment (FDI) in the next 5 years in the infrastructure alone (Government of India, 2007).

 

 

 

In Table 27.2, we have compared the output growth in transport and communications in recent years with the situation in 1991–92. From Table 27.2, it is revealed that the growth of output reflected through certain indicators shows tremendous improvement in the post-1991 period. The railway revenue-earning goods traffic and the cargo handled at major ports have witnessed a significant growth. New telephone connections were provided, which is an indicator of the growth in telecommunication of 40.1 per cent in 2003–04 compared to 23.9 per cent in 1991–92, though it fluctuates from year to year. Having said about this, in the ensuing sections, we intend to undertake a discussion on the growth of each of these sectors over the years.

27.3 Transport Sector in India

A well-knit and coordinated system of transport plays an important role in the sustained economic growth of a country. The present transport system of the country comprises several modes of transport including rail, road, coastal shipping, air transport, etc. Transport has recorded a substantial growth over the years both in terms of the spread of network and in terms of the output of the system. The Ministry of Surface Transport is responsible for the formation and implementation of policies and programmes for the development of various modes of transport, say, the railways and the civil aviation. The transport sector in India comprises both the public works and the transport sectors. The public works includes facilities such as roads, dams, canals, and irrigation and drainage facilities. The transport sector includes urban and interurban railways, urban transport, seaports, waterways and airports. India’s transport sector is large and diverse; it caters to the needs of 1.1 billion people. In 1997, the sector contributed 4.4 per cent to the nation’s GDP, with road transportation contributing the lion’s share.

 

 

Infrastructure development, especially the transport sector, was recognized in the planned economic regime of the country. As a result, over the years, the budget share of infrastructure has been increasing. The budget share on the transport sector in India is given in Table 27.3. Though the overall budget share has decreased over the years, in the Tenth Plan, the budget share has increased significantly. One of the important aims of the Tenth Plan has been modernization and technological improvement of the railways. Similarly, road development with private participation to improve the quality to meet the increasing demand is also a concern under this plan. From Table 27.3 it is seen that though the budget share for the total infrastructure was declining with the Tenth Plan, it has again increased considerably from 11.73 per cent in the Ninth Plan to 19.12 per cent in the Tenth Plan.

Good physical connectivity in the urban and rural areas is essential for economic growth. The transport system helps mobility of men, materials and facilitates to provide a large market for goods and services, which in turn leads to large-scale production through division and specialization of labour. The transport development bridges the gap between backward areas and well-developed areas by ensuring the accessibility and better utilization of existing resources. In a developing country, like India, improvement in transport facilities accentuates industrialization both directly and indirectly. The demand generated out of transport development for locomotives, motor vehicles, ships, etc., leads to progress of industries, which specialize in the production of these goods. Since the early 1990s, India’s growing economy has witnessed a rise in the demand for transport infrastructure and services by around 10 per cent a year. However, the sector has not been able to keep pace with the rising demand and is proving to be a drag on the economy. Major improvements in the sector are therefore required to support the country’s continued economic growth and to reduce poverty. In the next section, we have made an attempt to analyse the growth performance of some of the transport facilities viz., railways, roads, ports and civil aviation.

27.3.1 Growth Performance in Transport Sector

27.3.1.1 Indian Railways Railways are the principal mode of transportation and with a capital base of about Rs 55,000 crore plays a pivotal role in meeting the transport needs of the country. The beginning of Indian Railways in 1853 was a landmark in the economic history of India. From then Indian Railways expanded rapidly to become the largest railway in Asia and the fourth most heavily used system in the world. It carries some 14 million passengers a day and is one of the world’s largest employers. Till recently, the railways played a leading role in carrying passengers and cargo across India’s vast territory. However, with tariff policies that overcharge freight to subsidize passenger travel, the movement of freight is increasingly shifting from railways to roads.

From a modest beginning in 1853, when the first train steamed off from Mumbai to Thane, a distance of 34 km, Indian Railways has grown into a vast network spreading over a route length of 63,465 km with a fleet of 7,910 locomotives, 42,441 passenger service vehicles, 5,822 other coaching vehicles and 222,379 wagons as on 31 March 2005. The growth of Indian Railways in the 150 years of its existence is thus phenomenal. It has played a vital role in the economic, industrial and social development of the country. The network runs multigauge operations extending over 63,465 route-kilometres. The gauge-wise route and track lengths of the system as on 31 March 2005 are given in Table 27.4.

 

 

 

The main objectives of railways planning have been to develop the transport infrastructure to carry the projected quantum of traffic and meet the developmental needs of the economy. Since the inception of the planned era in 1950–51, Indian Railways has implemented nine five-year plans, apart from annual plans in some years. During the plans, emphasis was laid on a comprehensive programme of system modernization. With the capacity being stretched to the full, investment for cost-effective technological changes becomes indispensible in order to meet the ever-increasing demand for rail transport. Alongwith the major thrust directed towards rehabilitation of assets, technological changes and upgradation of standards were initiated in important areas of track, locomotives, passenger coaches, wagon bogie designs, signaling and telecommunications. The progress of railway traffic and inputs are shown in Table 27.5.

In terms of the route length, running track, passengers originating and total number of locomotives, tremendous growth has been observed over the years. It is seen from the table that passengers originating had raised from 1,284 million in 1950–51 to 5378 million in 2004–05 and passenger kilometres from 66.52 billion in 1950–51 to 576 billion in 2004–05. Despite constraint of resources, the railways has been able to cope with the increasing demand of passenger traffic. The railways is the premier mode of passenger transport both for long-distance and for suburban traffic. Rapid progress in industrial and agricultural sectors has generated a higher level of demand for rail transport, particularly in the core sectors like coal, iron and steel ores, petroleum products and essential commodities, such as food grains, fertilizers, cement, sugar, salt, edible oils, etc. Revenue freight traffic increased from 73.2 million tonnes in 1950–51 to 602.1 million tonnes in 2004–05. Transport effort measured in terms of net tonne kilometres (NTkm) increased from 38 billion in 1950–51 to 407.4 billion in 2004–05 (CMIE 2006). Different measures have been taken for improvement. They are line-capacity augmentation on certain critical sectors and modernization of the signalling system; measures such as unit train operation for bulk commodities like coal; increase in roller-bearing-equipped wagons; increase in trailing loads to 4,500 tonnes, operation ‘UNIGAUGE’ on Indian Railways, strengthening the track structure by providing heavier and stronger rails and concrete sleepers; and production of prototype electric locomotives of 5000 HP for freight operation by Chittaranjan Locomotive Works, West Bengal, India.

Indian Railways, the second largest rail network under a single management, has been contributing to the industrial and economic landscape for more than 150 years. Of the two main segments-freight and passenger of the Indian Railways, the freight component accounts for roughly two-thirds of revenues. With the freight segment, bulk traffic accounts for nearly 95 per cent, of which about 50 per cent is coal. The revenue earning freight and different components are given in Table 27.6 on the performance of railways. It is seen that coal accounts for a major share in revenue earnings.

There were significant efforts at ‘tariff rebalancing’ and rationalization of fare and freight structures in railway budgets for 2002–03 to 2005. These include reducing the number of classes for freight charge from 59 to 19 and introduction of three new special classes, namely 90W1, 90W2 and 90W3 below Class 90, for certain lightweight commodities in 2005–06. There has been no across-the-board increase in freight rates during the last 4 years. A major reform has been the regrouping of 80 commodity groups for rationalizing goods tariff. Measures were introduced to connect major cities. The high-density network, connecting the four metro cities of Chennai, Delhi, Kolkata and Mumbai, including its diagonals, popularly called the Golden Quadrilateral, has got saturated at most locations. The Mumbai-Delhi and Mumbai-Howrah routes have very high capacity utilization. Additional freight corridor, along with an accelerated programme of containerization, could contribute towards increasing the share of railways in non-bulk traffic and create capacities to meet the expected annual demand.

 

 

The reform programme embarked upon by Indian Railways to address various issues for the business orientation of the organization includes development of fully computerized cost accounting organized on business lines. The new accounting system would support existing government-reporting requirements and provide activity/service-based revenue and cost data. Policy initiatives for the introduction of competition in certain sectors, like container business and concessioning of loss-making branch lines, have been taken up as a part of the programme. The major challenge before Indian Railways is providing services matching with customers’ expectations and in assimilating rapid changes in technology. This can be met effectively through continuous updation of knowledge, skills and attitude of railway staff.

In recent years, the budgetary support for railways got reduced. In the wake of declining budgetary support, it becomes imperative that railways functions as a commercial undertaking and not merely as a public utility service. Railways must also meet the challenge by eliminating non-essential expenditure, increasing operational efficiency, conserving energy and raising manpower productivity. The railways employs 16 lakh workers, the largest number for any undertaking in the country. While staff productivity in terms of the number of traffic units per employee, asset productivity in terms of the number of traffic units per employee and in terms of the net tonne kilometres, per wagon day, wagon turnaround time, loco utilization, etc., has improved over the years and there is scope for further improvement.

The Eleventh Five Year Plan stresses the need for modernization of railways. It is observed in the approach paper of the Eleventh Five Year Plan that the pace of railway modernization needs to be vigorously accelerated. A paradigm shift in the provision and delivery of rail services is envisaged in the plan. It is recognized that world-class transport services require the provision of quality passenger amenities at the terminals, introduction of modern rolling stock and improvement in the overall sanitation. To improve the freight sector, the capacity of the rolling stock needs to be improved through appropriate changes in the design of wagons and making them lighter to increase the pay load-to-tare ratio.

27.3.1.2 Roads and Road Transport Roads are the dominant mode of transportation in India today. They carry almost 90 per cent of the country’s passenger traffic and 65 per cent of its freight. The density of India’s highway network—at 0.66 km of highway per square kilometre of land—is similar to that of the United States (0.65) and much greater than China’s (0.16) or Brazil’s (0.20). However, most highways in India are narrow and congested with poor surface quality and 40 per cent of India’s villages do not have access to all-weather roads.

India has one of the largest road networks in the world, aggregating to about 33 lakh kilometres at present. The country’s road network consists of national highways, state highways, major/other district roads and village/rural roads. Of these, the national highways and the state highways together account for about 195,000 km length. The National Highways, which is the responsibility of the Central Government, has a length of about 65,600 km across the length and breadth of the country. About 65 per cent of freight and 80 per cent passenger traffic is carried by the roads. The strain on the network is increasing day by day. The number of vehicles has grown at a rapid pace of10.16 per cent per annum over the last 5 years. The share of road in the total traffic has grown from 13.8 per cent of freight traffic and 15.4 per cent of passenger traffic in 1950–51 to a projected 65 per cent of freight traffic and 80 per cent of passenger traffic by the end of the year 2003–04. The operation of road transport in India is given in Table 27.7. The rapid expansion and strengthening of the road network therefore is imperative, both to provide for present and future traffic and to provide for improved accessibility to the hinterland. In addition, road transport needs to be regulated for better energy efficiency, lesser pollution and enhanced road safety. The Tenth Plan outlay for the Central Sector Roads Programme is Rs 59,490 crores (which includes Rs 500 crores for roads of inter-state and economic importance). The gross budgetary support is Rs 34,790 crores and the share of internal and extra budgetary resources in financing the plan is estimated at Rs 24,700 crores.

 

 

It is seen from Table 27.7 that the road length, both surfaced and unsurfaced, has increased. The total road length has increased from 400 thousand kilometres in 1950–51 to 2,483 thousand kilometres in 2001–02. Indian roads can be classified into three types, namely national highways, state highways, district and rural roads. In 2001–02, the total length of the national highways and state highways is 1,981 thousand kilometres and 137 thousand kilometers, respectively. There was tremendous growth in the number of vehicles registered. From 306,000 in 1950–51, the total number of vehicles has increased to 67,033,000 in 2001–02. The revenue from road transport has also increased since 1950–51, both for the centre and for the state. From Rs 35 crores in 1950–51 it was continuously increasing and reached Rs 6,918 crores in 2001–202 for the centre. The state revenue has also increased from Rs 13 crores in 1950–51 to Rs 4,424.7 crores in 2001–02. Both the centre and states have vied with each other to impose fresh taxes on motor vehicles but have failed miserably to provide necessary facilities for the construction and maintenance of roads. Inspite of the tremendous increase in the volume of road traffic, both, passenger and freight, the main road network comprising of the national and state highways has not matched this traffic growth. Much of the expansion of the road network has been through building the rural roads to provide connectivity to rural masses, although 50 per cent of the villages are still to be connected with all-weather roads. Inadequate networks have led to higher transportation costs which have also severely eroded international competitiveness of the Indian Economy. Commercial vehicles are able to run only 200–250 km on an average per day as compared to 500–600 km per day in developed countries.

Private participation in road development: Traditionally, the road projects were financed only out of the budgetary grants and were controlled/supervised by the government. The road sector has attracted very limited private sector participation in the past. While the traffic has been constantly increasing at a rapid pace, the traditional system of financing road projects through budgetary allocation has proved to be inadequate. This inadequacy and the inability of the government to rise up to meet the demand for road development led to the exploration of the innovative means of financing the highly capital intensive road projects. The beginning of a significant private sector participation in road projects was made with the launch of India’s largest road project—National Highways Development Project (NHDP). To encourage private sector participation, several initiatives have been taken by the government, which include declaration of the road sector as an industry, provision of capital subsidy up to 40 per cent of the project cost to make projects commercially viable, 100 per cent tax exemption in any consecutive 10 years out of the first 20 years of a project, provision of encumbrance-free site for work, (i.e. the government shall meet all expenses relating to land and other pre-construction activities). The government allows FDI up to 100 per cent in the road sector. The private parties will be given the right to collect and retain toll.

So far, 67 projects were undertaken valued about Rs 15,964.37 crores on Built Operate and Transfer (BOT) toll-based projects. Out of this, 25 projects amounting to Rs 2,634.8 crores have been completed and 42 projects amounting to Rs 13,329.57 crores are under progress. There are some other projects under public—private partnership called BOT Annuity Based projects. In this category, 12 projects valued about Rs 4,474.29 crores have been taken on annuity basis through the National Highways Authority of India (NHAI). Out of this, eight projects amounting to Rs 2,353.7 crores have been completed and four projects amounting to Rs 2,120.59 crores are under progress.

The Control of National Highways (Land and Traffic) Act, 2002 was passed by the Parliament and notified. The legislation aims at preventing unauthorized occupation of the highway land and seeks to control access points of the National Highways and regulate traffic on them. A key innovation in recent years has been the creation of a major new source of funding for national, state and rural roads, viz., the Central Road Fund, created under the Central Road Fund Act, 2000. This was a major milestone in obtaining user charges to fund road construction. In fact, this fund is the financial foundation of an important project-the NHDP, which entails expansion of the existing two-lane highways to four/six lanes and strengthening of the existing land on nearly 13,000 km. This project is considered as one of the largest single-highway projects in the world.

The NHAI is the implementing agency for the NHDP programme. The NHAI is also to implement four laning of 603 km of the National Highways as a part of the special accelerated road development programme in the north eastern region. The national highways accounts for only about 2 per cent of the total length of roads, but carry about 40 per cent of the total traffic across the length and breadth of the country. Considering the importance of the national highways and the rapid increase in traffic, the government has taken up the NHDP. The first phase is the ‘Golden Quadrilateral’ connecting the four major cities of Delhi, Mumbai, Chennai and Kolkata. In the second phase, the north-south and east-west corridors (NS—EW; 7,300 km) connecting Srinagar in the north to Kanyakumari in the south, including Salem to Kochi, and Silcher in the east to Porbandar in the west will be undertaken. This phase involves four laning of over 4,000 km of the BOT in the year 2005, approved at an estimated cost of Rs 22,000 crores.

It is seen from Table 27.8, that on 30 November 2005, 6,271 km or roads under the NHDP with the bulk (5,097 km) lying on the GQ was complete; another 6,179 km was under construction and the cumulative expenditure was Rs 29,486 crores. However, there are some constraints faced in the timely completion of the NHDP. The main constraints are delays in land acquisition and removal of structures, law and order problem in some states, and the poor performance of some contractors, etc.

27.3.1.3 Ports The ports are an important component of infrastructure. In general terminology, a port is a point or place from where goods or commodities are loaded and unloaded from a water-based to a land-based mode of transport. India has 12 major and 184 minor and intermediate ports along its vast coastline of 7,517 km including the Andaman and Nicobar islands. These ports serve the country’s growing foreign trade in petroleum products, iron ore and coal, as well as the increasing movement of containers. Major ports handle about 75 per cent of the port traffic with Visakhapatnam at the top (in each of the last 5 years), while minor ports handle the remaining. The major ports are Chennai, Cochin, Enore, Kandla, Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin and Visakhapatnam. The minor ports are located in Gujarat (40), Maharashtra (53), Goa (5), Daman and Diu (2), Karnataka (9), Kerala (13), Lakshadweep (10), Tamil Nadu (14), Pondicherry (1), Andhra Pradesh (12), Odisha (92), and Andaman and Nicobar (23). Ports play a major role in the development of hinterland (area behind the port served by it) by facilitating the transfer of knowledge, wealth, goods and technology from one region to another in a country or from one country to another.

 

Trends and patterns of traffic handled at all major ports: The traffic handled at ports generally includes the commodity-wise distribution of cargo handled, classification of total cargo handled into import and export traffic, overseas and coastal traffic, category-wise cargo handled and container traffic. The major commodities handled at major ports in India are Petroleum, Oil and Lubricants (POL), fertilizers finished, fertilizer raw material, food grain, iron ore, coal, other cargo, etc. The trends and patterns of principal commodities handled at major ports are discussed in this section.

The total cargo handled registered an annual average growth rate 5.43 per cent during the period 1971–72 to 2004–05 (Table 27.9) and the average tonnage handled was 159.28 million tonnes during this period. The period-wise growth rates of the total cargo handled show that it was gradually increasing over the period. More importantly, the growth rate of the total cargo was high in the post-liberalization period compared to 1970s and 1980s. The trends of total cargo handled as given in Figure 27.1 also explain this fact. To shed more light on this, we analyse the growth rates and shares of principal commodities in the total cargo traffic at major ports in India for different subperiods as given in Table 27.9. It is evident that the POL occupied a substantial share in the total cargo for the entire period, though it marginally declined after 1991. The share of the POL for the entire period is 40.22 per cent. The growth rate showed that it is high during 1980s compared to other periods. Thus, in the post-liberalization period both the share and growth rate of the POL has come down (Figure 27.1). However, it still dominates the major share in the total cargo handled due to the oil requirements from oil-producing countries. Against this, coal has increased its share over the years. From 4.50 per cent during 1970s, it went up to 15.84 per cent in the post-reform period. From 1971–72 to 2004–05, the growth rate of coal is high compared to all other principal commodities. Obviously, this is attributed to the increasing dependency on coal for the requirements of thermal power stations in the country.

 

 

 

In Table 27.10, we analyse the trends in import and export of principal commodities handled at all major Indian ports during the period 1991–92 to 2004–05. It is seen that the average tonnage of import cargo handled at major ports after 1991 was 140.22 million tonnes with an annual average growth of 6.32 per cent. Among the items, POL was the single large item with an average share of 52.12 per cent. It is followed by coal (18.97 per cent) and containers (8.10 per cent). But, the highest growth rate is registered for Containers (14.73 per cent) followed by Coal (8.12 per cent). Regarding container traffic, there has been an impressive growth of container traffic of 14.2 per cent per annum during the 5 years ending in 2004–05. The largest container port in the world in 2004, Hong Kong, processed 6.43 million TEUs (twenty foot equivalent units). The 10th largest port, Dubai, processed 6.43 million TEUs. In contrast, Jawaharlal Nehru Port Trust, India’s largest container port, handled roughly 2.37 million TEUs in 2004–05 (Government of India, 2007). From the table, it is seen that the share of iron ore, fertilizer finished, fertilizer raw materials and food grain in import is comparatively low and all these commodities have registered a negative growth during 1991–92 to 2004–05 with only fertilizer raw materials as an exception.

We now turn to the export basket of commodities handled at all major ports. The aggregate cargo export amounted to an average of 99.42 million tonnes during the period 1991–92 to 2004–05. It reveals from Table 27.10 that iron ore has the largest share in the export basket (40.77 per cent) with a growth rate 5.75 per cent during the post-1991 period. For POL and coal, both the share and the growth rate are significantly less compared to their dominance in the import basket. The share of containers in the export traffic is higher than the share in import traffic for the period of analysis. A perusal at Figure 27.2 reveals that import cargo grew at a faster rate than export cargo. In this context, one may argue that trade liberalization measures introduced in India were more conducive for growth of imports. Figure 27.2 also shows that trans-shipment traffic too registered an increase in the post-reform period. Trans-shipment traffic refers to the transfer of cargo from one ship to another at sea with the objective of sending it to another destination.

 

The cargo in a port can be divided into both overseas and coastal. Overseas cargo refers to the movement of cargo from the home country to a foreign country, and coastal traffic refers to the movement of cargo from one port to another inside the home country. Figure 27.3 reveals that over the years, overseas cargo registered higher growth than coastal cargo traffic. This is more evident from Table 27.11. While overseas cargo registered a high growth rate of 7.14 per cent, it is only 3.84 per cent for coastal cargo traffic. The average share of overseas cargo also is very high compared to the share of coastal cargo in the total cargo traffic.

 

The port sector was thrown open to private participation to improve efficiency, productivity and quality of services as well as to bring competitiveness in port services. This is in consonance with the general policy of liberalization and globalization policy initiated after 1991. Various areas of port functioning such as leasing out existing assets of the port, construction or creation of additional assets, leasing of equipment for port handling and leasing of floating crafts from the private sector, pilotage and captive facilities for port-based industries have been identified for participation and investment by the private sector.

Another policy initiative was the formation of joint ventures in the port sector. Jointventure formations between a major port and a foreign port, between major ports and minor ports without tender, as well as between major ports and companies following tender route are permitted by the government. The measure is aimed at facilitating port trusts to attract new technology, introducing better managerial process, expediting implementation of schemes, fostering strategic alliance with minor ports for creation of optimal port infrastructure and enhancing confidence of the private sector in funding ports. So far, 13 private sector projects involving an investment of Rs 2,662.2 crores and capacity addition of 40.40 MTPA have been operationalized. 20 projects involving investment of Rs 4,907.7 crores are under various stages of evaluation and implementation. In the years to come, the growth of Indian ports will be determined by the private sector participation both qualitatively and quantitatively.

 

27.3.1.4 Civil Aviation The civil aviation sector in India has seen a phenomenal growth in recent years. India has 60 airports, including 11 international airports. The dramatic increase in air traffic for both passengers and cargo in recent years has placed a heavy strain on the country’s four major airports. As on date there are a large number of companies providing passenger transport and cargo-handling services in the country. The air transport companies are both in the public sector and in the private sector. The public sector has one company i.e. Air India Ltd. In the private sector, there are seven scheduled airlines (passenger), namely Jet Airways, Sahara Airlines, Deccan Aviation, Spice Jet, Go Airways, King Fisher Airlines, Paramount Airways and Indigo operating on the domestic sector, providing passengers with a wide choice. There is only one cargo-handling service providing scheduled airline, i.e., Blue Dart Aviation. In addition to the above-mentioned scheduled airlines, there are at present 46 companies holding non-scheduled air transport operators’ permit. Air India operates 173 flights per week servicing 59 stations (45 international and 14 domestic). The Indian Airlines is the major domestic air carrier of the country.

Aviation has the advantage of saving time compared to other means of transport. Air transport provides easy accessibility to remote regions, which has implications for national integration and security. However, this advantage has to be compared with the high cost of air travel and cost of the economy because of its high fuel intensity. The civil aviation has started its progress in 1920. In 1927, the Civil Aviation Department was set up and a number of flying clubs were founded. In 1946, the Government of India laid down its aviation policy for developing the internal and external transport services with a limited number of sound and reliable private commercial concerns. In 1946, the government set up the Air Transport Licensing Board. The main agencies involved in providing civil aviation services are Air India, Indian Airlines and Vayudoot. The necessary infrastructural facilities for them are provided by International Airport Authority of India (IAAI) and Director General of Civil Aviation (DGCA). While the IAAI looks after the development of the four international airports, the DGCA is responsible for maintenance and development of civil aerodromes, civil enclaves and aeronautical communication stations.

Non-metro airports: The Airport Authority of India (AAI) is considering the development of non-metro airports. The Indian Financial Consultants (IFC) and Global Technical Advisers (GTAs) have been appointed for five airports, namely Ahmedabad, Jaipur, Mangalore, Trivandrum and Udaipur. The Techno-Economic Feasibility Study (TEFS) for all the 10 non-metro airports has been taken up by AAI in a phased manner. The terminal building and associated infrastructure like car park/roads and air side work with an estimated cost of Rs 1,437 crores for Phase-I (2006–08) will be taken up by the AAI. The land use plans recommended by the GTA/IFC for enhancement of non-aeronautical revenue will be restricted to passenger-related services or aircraft services or air traffic services as per the provisions of the AAI Act and state government/local body bye-laws. For carrying out the TEFS for each of these 15 airports, the process for the appointment of the GTA and IFC is nearing completion. Five more airports, namely Agartala, Dehradun, Imphal, Ranchi and Raipur, have been identified of carrying out the TEFS, for which the process for the appointment of GTAs is being initiated. The consultants will identify the viable development works specific to each airport. The approximate cost of development of these non-metro airports is estimated to be of the order of Rs 5,000 crores.

Air traffic: Policy initiatives have had a marked impact upon airline traffic. The entry of low-cost carriers (LCCs), offering non-fill flights which are 30–35 per cent cheaper than the regular flights, has changed the profile of the air passengers. Domestic and international traffic grew by 22.2 per cent and 18 per cent, respectively, in April–December 2005. Private airlines now account for 68–69 per cent of domestic traffic. During April—December 2005, international and domestic cargo recorded a growth of 11.7 per cent and 6.6 per cent, respectively. This growth is the second highest in the world, next to China, for the second consecutive years (Government of India, 2006). Some of the indicators of civil aviation growth are given in Table 27.12. In terms of aircraft traffic, passenger handled and cargo handled, it registered high growth in recent years. The main reason for increase in international air traffic is India’s new international status as a IT and manufacturing hub.

The civil aviation sector has played an important role in India’s economy. It provides a fast and reliable mode of transport across the country and is particularly important for many areas/places still not adequately connected by rail or road. In 2000–01, 42.03 million domestic and international passengers and 846.42 thousand tonnes of cargo were handled at various airports in the country. With increasing globalization, this sector will play a more significant role in integrating the Indian economy with the rest of the world. The passengers flown in and aircraft flown are given in Table 27.13.

Bearing a few airports, the available infrastructure facilities are underutilized at most airports. About 50 per cent of the airports under the AAI are not being utilized by various airlines. More interestingly, there are a large number of airports where full infrastructure is available but only one or two flights operate in a day, leading to heavy underutilization of infrastructure as well as wastage of manpower. Only nine airports of the AAI manage to make profits (Government of India, 2003). In view of this, no new airport should be opened without government’s approval. Private sector participation may be encouraged wherever it is considered necessary to construct a new airport. At present the foreign equity limit in the international services is 26 per cent. In order to attract investment in the sector, the possibility of increase in foreign equity also needs to be considered. In order to promote international tourism, the liberal policy of foreign charter flights could also be considered. There is a continuing need for the upgradation and modernization of air traffic services. The navigation and surveillance facilities should be upgraded as a matter of priority to be in line with world standards. New approaches in airport designs should be considered to accommodate technological innovations like the new large aircraft. Technological upgradation should be extended to cover the ground facilities through introduction of automation and computerization, mechanization of baggagehandling facilities and provision of aerobridges, etc. It would be beneficial for the civil aviation sector to increase the private sector participation in the provision of infrastructure facilities as well as air servicing.

 

Policy initiatives in civil aviation: In order to help the Indian exporters to make their exports more competitive, the government had introduced an ‘Open Sky Policy’ for cargo in April 1992. Under this policy, foreign airlines or association of exporters can bring any number of freighters to the country for upliftment of cargo. The government has also permitted market forces to determine cargo tariff, with IATA rates as the floor rates. The policy has been continuing ever since with encouraging results. Now in order to give a definite boost to cargo operations, a core group for cargo has been set up under the chairmanship of Secretary.

India now has bilateral air services agreement with 101 countries. A revised air services agreement between India and the USA was signed on 14 April 2005, replacing the earlier agreement signed in 1956. As a part of the change in policy, India now grants unlimited access to the designated airlines to any points of call in the territory of the other country as against few airports under the earlier agreement. The revised agreement removes all restrictions on exercise of fifth freedom traffic rights, code share rights and provides for greater operational flexibility. With a view to optimally utilize our trilateral entitlement, Indian scheduled carriers with at least 5 years of continuous operation in the domestic sector and fleet size of 20 aircrafts have also been permitted to operate on all overseas destinations except the Gulf countries of UAE, Quatar, Oman, Bahrain and Kuwait as well as Saudi Arabia.

The international airports in Delhi and Mumbai are being restructured and modernized through private participation. FDI in the transaction has been capped at 49 per cent. On the basis of the evaluation of technical and financial bids, it has been decided by the government that the GMR Consortium will be the private partner for modernization and development of the New Delhi airport and GVK Consortium will be the private partner for the modernization and development of the Mumbai airport. A Green Field airport at Devanhalli near Bangalore is being implemented on a Build-Own Operate and Transfer (BOOT) basis developed with public-private participation. The Government of Andhra Pradesh (GOAP) has selected a consortium led by M/s GMR Infrastructure Limited with Malaysian Airport Holding Berhard (MAHB) as the developer for the Greenfield Airport at Shamshabad near Hyderabad. All these initiatives involve the participation of the private sector with FDI playing a pivotal role in their development. Besides all these initiatives, the committee on infrastructure under the chairmanship of the Prime Minister approved the development of 35 non-metro plans at each Arunachal Pradesh and Sikkim airports by 2010–11.

27.4 Communications

The new telecom policy, 1991 made a provision of affordable and effective communication as its core vision and goal. In recent years, the telecommunication sector in India has witnessed tremendous achievement. The teledensity level has surpassed the targets set out by the authority. The total number of telephones (basic and mobile) rose from 22.8 million in 1999 to more than 125 million in December 2005 (Table 27.14). It is seen that overall the tele-density has risen from a mere 2.32 in 1999 to 11.32 in December 2005.

In recent years, there has been a dramatic fall in telecom tariffs with increased competition. The tariff for local calls, particularly for cellular, has fallen significantly in recent times. During the period 2003–05 this decline was most prominent. This is given in Table 27.15.

The decline in tariff is even noted for the peak long-distance tariff between Delhi and Mumbai. It has come down from Rs 30 per minute in 2000 to less than Rs 2.40 per minute in 2004. Table 27.16 clearly shows this trend. Similarly, international call charges have also come down from Rs 61.20 per minute in 2000 to Rs 7.20 per minute from April 2004 onwards for the American continent (Table 27.17). It is noted that mobile telephony prices have dropped from Rs 16 per minute to Rs 1.20 per minute. A new plan launched by the public sector operation (BSNL and MTNL) called ‘One-India Plan’ likely to be implemented from 1 March 2006 onwards will enable the customers of the BSNL and MTNL to call from one end of India to other at the cost of Rs 1.00 per minute, any time of the day to any phone. All these show that competition is thriving in the telecommunication sector in India.

 

 

 

 

 

The telecom sector is now making its impact in the rural areas also. At present, 539,572 villages were connected using a Village Public Telephone (VPT). Under the Bharat Nirmal Yojana, a total of 66,822 villages are to be provided with VPTS by November 2007. Against this target, 17,182 villages have already been covered. In the rural area, more than 2 lakh public call offices (PCOs) and 14.18 million phones have been provided. Telecommunications witnessed structural and institutional reforms since 1991 as a part of liberalization. The opening up of the sector for private parties has led to both rapid growth and maximization of consumer benefits. The tariffs have been falling continuously across the board as a result of competition. The growth of network has been very encouraging but still a lot needs to be done so that India remains a front-runner in IT revolution. The major policy initiatives undertaken by the government are given below.

1. BSNL announced 33 per cent reduction in call charges for all the countries for international calls.
2. Annual license fee for National Long Distance (NLD) licences as well as International Long Distance (ILD) licences reduced to 6 per cent of the Adjusted Gross Revenue (AGR) with effect from 1 January 2006.
3. Entry fee for NLD licences reduced to Rs 2.5 crores from Rs 100 crores prospectively, that is, from the date of issue of amendment to the existing guidelines to that effect.
4. Entry fee for ILD licences reduced to Rs 2.5 crores from Rs 25 crores.
5. NLD service providers shall be permitted to carry intracircle traffic with mutual agreement with originating service providers. Agreement with terminating service providers shall not be required.
6. Mandatory roll-out obligations for future NLD licences as well as existing NLD licences waived off.
7. No more mandatory roll-out obligations for ILD service licences except for having at least one switch in India. Roll-out obligations for existing ILD service licencees stand waived off from the date of issue of orders.
8. Networth and paid-up capital of the applicant company for NLD as well ILD service licence shall be Rs 2.5 crores only and while counting the networth, the networth of promoters shall not be counted.
9. NLD service providers can access the subscribers directly for provision of leased circuits/closed user groups and can provide last mile connectivity. The ILD service providers can access the subscriber directly only for the provision of leased circuits/ closed user groups.
10. Access service providers can provide internet telephony, internet services and broadband services. If required, access service providers can use the network of NLD/ ILD service licences.
11. No more IP-II and IP VPN licences to be issued with immediate effect as these licences are allowed to migrate to NLD/ILD service licencees.
12. Internet service provider (ISP) with internet telephony (restricted) to be charged licence fee at 6 per cent of AGR with effect from 1 January 2006.
13. Annual licence fee in respect of the VSAT commercial to be charged at 6 per cent of AGR with effect from 1 January 2006.
14. FDI ceilings raised from 49 per cent to 74 per cent. 100 per cent FDI is permitted in the area of telecom equipment manufacturing and provision of IT-enabled services.

27.5 Posts

As in the case of telecommunications, the services of the Indian postal network have also grown as the largest network in the world in terms of the area covered and population served. An international comparison of our postal network is given in Table 27.18. Postal network can be classified into four categories, namely communication services, transportation services, financial services and premium value-added services.

 

 

There is a significant subsidy element in postal services with user charges in the postal system roughly covering only 76 per cent of the cash costs. As per data, the deficit is likely to increase from Rs 1,364.40 crores in 2002–03 to Rs 1,449.64 crores in 2005–06. However, in the context of privatization, the mechanism and size of the subsidy constitute to be an important policy question. The Indian postal system has responded to the challenges posed by the advent of computers and technology by redefining their roles, developing and expanding their core competencies and even harvesting the very technologies that have challenged them. Presently, 5,232 post offices, which include all head post offices and major sub-post offices, are computerized for both counter and backoffice works. E-post has now been upgraded for multiple massing to make it useful for corporate houses. Retail post services, offering of sale application forms for entrance examinations and passport application forms are now available in post offices.

To sum up, it is recognized in the Tenth Plan that infrastructure inadequacies in both rural and urban areas are a major constraint for India’s growth. Consequently, the committee on infrastructure under the chairmanship of the Prime Minister has evolved an ambitious programme for infrastructure development under the Eleventh Five Year Plan. Investment in infrastructure will need to increase from 4.6 per cent to around 8 per cent of GDP in the Eleventh Plan period. It is emphasized that of the 6 percentage points increase in the total investment needed to accelerate growth from 7 per cent to 9 per cent, about half should be infrastructure. However, due to scarcity of public resources, public and private partnerships (PPPs) will be encouraged wherever feasible, after reviews by independent experts will be made and corrective action taken if necessary. Eleventh Plan notes that PPPs are increasingly becoming the preferred mode for correction and operation of infrastructure services, such as highways, airports, ports, etc., both in developing and in developed countries.

References

Centre for Monitoring Indian Economy (2006), ‘Infrastructure’, May, Economic Intelligence Service, Mumbai.

Government of India (2006). Economic Survey, 2005–2006, New Delhi.

Government of India (2007). Economic Survey, 2006–2007, New Delhi.

Mid Term Appraisal of 10th Plan, Planning Commission, New Delhi.

World Development Report (1994), World Bank, Washington.

Government of India (1996). Indian Railway Year Book 1995–1996, Ministry of Railways, New Delhi.