CHAPTER 4

Economic Infrastructure

Concept and nature of infrastructure: Infrastructure refers to public systems, services, and facilities that are necessary for economic activity. Infrastructure can be grouped under two broad heads: economic and social. This chapter is devoted to a discussion of the state of economic infrastructure in India. It comprises connectivity, communication, and essential facilities that form an economy’s foundation and are important determinants of economic growth. Infrastructure contributes to development both directly and indirectly. The economic infrastructure sector primarily includes electricity, roads, bridges, dams, telecommunications, railways, irrigation, water supply, ports and airports, storing facilities, oil and gas pipelines, banks and financial institutions, and urban infrastructure development. Economic infrastructure produces services that directly facilitate and are basic to the carrying out of a wide variety of economic activities. Given the situation in 2019, India’s infrastructure sector can be termed as a fairly inadequate one. There is an urgent requirement to modernize the sector and expand it as well. The following features have been noted:

1. Lumpiness or indivisibility of investments
2. Long gestation and payback periods
3. Monopolistic tendency
4. Presence of externalities

Infrastructure and its importance: The infrastructure sector is a key growth driver for the Indian economy and plays a significant role in the economy’s overall development process. The adequacy of or lack of infrastructure determines an economy’s success or failure in increasing production, expanding trade, reducing poverty, and improving environmental conditions. Infrastructure is taken as the foundation on which the factors of production interact in order to produce output. Well-organized and widespread infrastructure is essential for a country’s economic growth. The increased spending in this sector has a multiplier effect on the overall economic growth as it necessitates industrial growth and manufacturing. This in turn boosts aggregate demand by improving living conditions. The output (or the final products of different segments of the infrastructure) is the direct effect. Infrastructure’s indirect contribution is as an intermediate input that enhances the productivity of all inputs of different sectors. For example, the quality of labor is enhanced by human capital improvements. Similarly, productivity of physical capital is improved by power and transportation. The linkages between economic infrastructure and development are as follows (IBEF 2013):

1. Infrastructure lowers the cost of producing a given level of output, or alternatively, can increase the amount of output produced by all other inputs for a given cost.
2. Infrastructure enables markets to work better. Transactions are made less costly, and this increases the benefits of trade. For example, advances in transport and communications have considerably lowered storage costs by permitting producers to respond rapidly to changing consumer demands even in international trade (this is referred to as “modern logistics management”).
3. Unit costs tend to rise due to unreliable or inaccessible public infrastructure. Both small and big firms spend significantly on buying infrastructure services and suffer when these are not available. Electricity shortage has been a notorious constraint faced by expanding business units in India.

Development plans are, therefore, aimed at the development of infrastructure sectors through sector-specific policies, which in turn generate sustained economic growth. India has an investment requirement worth ₹50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country.1

Power: The electric power sector consists of a mix of plants depending on different primary fuels, including conventional sources like coal, lignite, natural gas, oil, hydro and nuclear power and nonconventional sources like wind and solar power, and agricultural and domestic waste. Coal remains the dominant primary energy source used in power generation, accounting for 67 percent of total generation.

There is a correlation between per capita electricity (a proxy for all energy forms) consumption and the Human Development Index (HDI). To maintain the continuous development pace of economic growth, the country must meet the growing demand for electricity. The bulk of all electricity generated is from widely dispersed coal-powered thermal plants; most of the remainder is from hydroelectric plants, built mainly in mountainous regions or along major escarpments, and only a tiny amount comes from a few nuclear installations. More than half of all electricity is industrially used. Agricultural use, largely for raising irrigation water from deep wells, exceeds domestic consumption. Rural electrification is increasing rapidly, and almost all villages are now tied into some distribution grid. As of 2019, the demand for electricity in the country was growing at a rapid rate and was expected to grow further in the years to come. In order to meet the increasing requirement for electricity, a massive addition to the installed generating capacity in the country is required. Coal is the mainstay of India’s energy sector and accounts for over 50 percent of the primary commercial energy supply. With coal production getting limited because of environmental and business reasons, the continued use of coal will only get pricier. India’s power generation is largely coal dependent and will continue to be so for quite some time.

The power sector was the first among infrastructure sectors to be opened for private sector investment. As economic reforms were initiated in 1991 and significantly higher growth expected as a result, it was clear that public sector resources would not be adequate for the kind of investment required in the power sector. It is now well recognized that the financial difficulties of the State Electricity Boards (SEBs) lie at the heart of the power sector problems. The root of the problem lies in the gap between user charges and cost of supply. Since the economic reforms of 1991, the power sector is at a crucial juncture of its evolution from a dominantly public sector environment to a more competitive power sector, with many private producers and greater reliance on markets, subject to regulation.

Between 2007 and 2012 there was an increase in the pace of addition to power generation capacity to the extent of 54,964 MW. The total capacity as on March 31, 2012, including renewable energy sources of the country, was 1,99,877 MW. The performance of the power sector shows many positive features, especially related to the pace of addition to power generation, but there are numerous problems related to fuel supply that need to be resolved, as also problems related to the financial viability of the operation of the distribution companies (Discoms) (GoI 2013, 12th Five Year Plan, Vol-II).

Woes of the power sector hinder the fast growth of electricity supply. Old, inefficient plants continue to operate whereas more efficient plants are underutilized. Although legally independent, Regulatory Commissions, formed under an Act of Parliament, are unable to fully regulate discoms (Distribution Companies) and fix rational tariffs. Unmetered power supply to agriculture provides no incentive to farmers to use electricity efficiently. There is a lot of hidden demand because of unreliable supply and load shedding (the deliberate shutdown of electric power in a part or parts of a power distribution system, generally to prevent the failure of the entire system when the demand strains the capacity of the system). State power utilities are not able to invest in system improvements due to their poor financial health. High industrial/commercial tariff and the cross-subsidy regime have affected the competitiveness of the industrial and commercial sectors.

Electricity distribution companies (discoms), which buy power from generators and transmission units and sell it to final users, went 27 percent deeper into the red in December 2018. Discoms owe nearly ₹42,000 crore ($58.13 million) to generating companies like state-owned giant NTPC, as well as private players like Adani, Tata Power and Sembcorp. Payments are delayed, often up to 580 days. Both state and central governments have joint jurisdiction over this sector; both must cooperate to repair it. Some states, including biggest defaulter Uttar Pradesh, have dysfunctional administrations, unable or unwilling to nudge non-paying voters to clear bills. Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh are better governed, yet rank among the top 10 defaulters, who together make up 80 percent of the money owed, ultimately, to generating units.

It costs money to build power plants, buy fuel, run turbines, transport electricity, install meters and pay utility employees. If these costs cannot be recovered, it is financially impossible to run a viable electricity network. India dreams of becoming an economic superpower; it cannot with a bankrupt electricity sector. Surveys show that people across income classes are willing to pay for reasonably priced power, if assured of quality supply. The alternative, widely used in power-deficit areas, is electricity generated by captive diesel engines, which costs several multiples of grid power rates. Yet, politicians across party lines persist with free power and patronage of power theft. Politicians must summon the will to make consumers pay for power, and supply stable, reasonably priced power to voters. This is the only way to salvage the power sector. Mere financial engineering, à la UDAY, is no solution (The Economic Times March 21, 2019).

NITI Aayog (2018b) has suggested a number of steps for bringing efficiency in the sector. “There has been notable policy attention on the power sector to shore up investments.” The way forward is to gainfully arrest widespread political patronage and garner the requisite political will to reform power distribution nationally. “Simultaneously, there is the pressing need to modernize power by means that include digital metering and time-of-day tariffs.” The watchwords need to be stepped-up efficiency in resource usage across the power spectrum.

Conventional power plants need thorough upgrades as well, to improve thermal efficiency and fast-forward reduction of carbon emissions. Dry condenser cooling can hugely reduce water usage too. But all such investments would require multi-year investments, which necessitates that state power utility finances duly improve. And fast (Mishra 2019).

Railways: Transportation issues and infrastructural delays affect a nation’s progress, and India needs much faster and efficient transportation systems. Rail experts believe that the rail transport systems are six times more energy efficient than road and four times more economical. The social costs in terms of environment damage or degradation are significantly lower for rail. Rail construction costs are approximately six times lower than road for comparable levels of traffic. Historically, Indian Railways has played a leading role in carrying passengers and cargo across India’s vast territory. India’s transport sector is grossly overstretched. The pace of economic development after the economic reforms of 1991 has imposed a heavy burden on this sector. To meet the requirements of the economy it will have to address several challenges. Indian Railways has the fourth largest network in the world in terms of route km (67,368 km in FY17). It is also the largest passenger (1,150 billion passenger km in FY17) and fourth largest freight (620 billion net tonne km in FY17) transporting railway system globally. In FY17, 13,32,910 passenger trains carried over 22.24 million passengers daily, that is, almost equivalent to Australia’s population, while the freight transported was 1.1 billion tonnes. Between FY07 and FY17, railways’ revenue increased at a compound annual growth rate (CAGR) of 5.7 percent to USD 25.1 billion in FY17, led by strong demand, increasing urbanization, and rising incomes (NITI Aayog 2018b). Indian Railways carries out various activities in the national interest that are not driven strictly by commercial principles. Several of these activities are uneconomic in nature. Indian Railways is either unable to recover the costs or ends up foregoing revenues it should have captured otherwise.

These social cost obligations fall into four categories:

1. Pricing essential commodities lower than cost
2. Low fares and passenger concessions (such as cheaper tickets for senior citizens, army veterans)
3. Uneconomic branch lines
4. New lines not yet profitable. In 2014–2015, due to such social service obligations, Indian Railways’ passenger business incurred a loss of about US $3,30,000 million (Debroy and Desai 2016).

Despite its extensive reach and the substantial growth in freight load, however, the modal share of railways in the transportation of surface freight declined from 86.2 percent in 1950–1951 to 33 percent in 2015, in part due to a shortfall in carrying capacity and a lack of price competitiveness. Indian Railways golden quadrilateral and its diagonals make up only 15 percent of the total route of the railways but it transports 52 percent of passenger traffic and 58 percent of total freight load. This highlights the high saturation and overutilized capacity on popular routes. Since passenger and freight traffic move on the same tracks in India, India has not been able to increase speed or capacity in a significant manner relative to global benchmarks. As of 2019, the rail corridors face severe capacity constraints. The biggest problem is the choking of important routes. Other issues plaguing rail transport are the differential speeds of trains, inadequate connectivity to ports and mines, inability to carry longer and heavier trains, and lower throughput and longer turnaround period.

Indian Railways has witnessed a steady decline in the annualized growth of freight business over the last two decades. The competition the rail freight sector faces is formidable. Indian Railways has to reorient and redimension its freight transportation strategy. Long-distance rail haulage of coal will keep diminishing, compelling Indian Railways to look for life beyond coal, which accounted for half of its total freight business in 2017. With its vision keyholed on bulk commodities, Indian Railways has, for example, less than 2 percent share in the fast moving consumer goods (FMCG) segment and 1 percent in auto and textiles. It needs to improve its product and calibrate its services to create a critical mass of piecemeal wagons/containers, in partnership with other players, for time-tabled, end-to-end multimodal logistics services. For passenger business too, Indian Railways faces competition not only from budget airlines but also new style, high-capacity buses and cars.

The railways’ warped pricing structure needs to be immediately addressed. Narrowing the fare gap between airlines and railways has been a catalyst for the rising shift to airlines. The railways has to grapple with managerial and operational aspects. Segregation of its passenger and freight businesses will help. Indian Railways must perform as a corporate entity with customer orientation. Its management structure has been compartmentalized, leading to departmental empire building. It would be prudent to streamline the traditional four-tiered organization into a three-tiered system, as Chinese Railways did in 2005 (Dayal 2019). As an ongoing transportation organization, it has to modernize and expand its capacity to serve the emerging needs of a growing economy. This will require substantial investment on a regular basis for the foreseeable future. New investment will have to be financed on a commercial basis. This is the challenge facing Indian Railways (Mohan 2003).

The NITI Aayog, in its comprehensive national strategy for new India, has stated that the railways should revisit its pricing model to make the passenger and freight segments sustainable. The railways needs to rationalize fare structures and subsidies and monetize assets to generate revenues. Freight tariffs should be competitive with the cost of road transportation. India should have a rail network that is not only efficient, reliable, and safe, but also cost effective and accessible, both with respect to the movement of people and goods. The railways should increase the speed of infrastructure creation from the present 7 km/day to 19 km/day by 2022–2023, achieve 100 percent electrification of broad gauge track in the same period, and also increase the average speed of freight and mail/express trains to 50 km/hr (from about 24 km/hr in 2016–2017) and
80 km/hr (from about 60 km/hr), respectively. The railways should enhance service delivery, achieving 95 percent on-time arrivals by 2022–2023,
and by that year, the railways should have a freight load of 1.9 billion tonnes and an improved modal share of 40 percent of freight movement from the current level of 33 percent. There is need to increase the share of nonfare revenues in total revenue up to 20 percent and enhance service delivery (NITI Aayog 2018b).

Road infrastructure: Increasing the coverage and quality of roads and highways is critical to enhancing connectivity and internal and external trade. The road sector in India accounts for the largest share in the movement of both passengers and freight. Forty percent of the total traffic in India is carried on highways, which are only about 2 percent of the total road length. Driven by a rapidly growing economy, access to vehicle finance, and improved road connectivity, the demand for mobility on roads has risen continuously, leading to a sharp rise in the number of road transport vehicles. The total number of registered vehicles in India increased from 58.9 million in 2001–2002 to 182.4 million in 2012–2013, a CAGR of almost 11 percent during this period. Access to and quality of public transportation, however, need continuous improvement. In urban areas, the increasing use of personal vehicular transport leads to road congestion, longer journey times, and higher levels of air and noise pollution. Expansion of the public transport fleets has been hampered by the short supply of vehicles—the total demand for buses was approximately 3,40,000 in FY 2017, while the availability/supply was only about 1,00,000 (NITI Aayog 2018).

The government has taken a decision to increase the national highway length from 96,000 km to 2,00,000 km by 2022. It is expected that 80 percent of the traffic will be on national highways. Transferring traffic from city roads to highways will help in the decongestion of cities, increase the life span of existing infrastructure, and reduce pollution levels. Developing of ring roads in the major cities of the country will provide commercial traffic an alternative to bypass cities. The ambitious project of developing inland waterways for transport has also been a focus for improving the transport infrastructure in the country. India has the second largest road network in the world, spanning over a total of 5.5 million km. Over 64.5 percent of all goods in the country are transported through roads, while 90 percent of the total passenger traffic uses the road network to commute.2

Ports and shipping: India has a coastline spanning about 7,500 km, forming one of the biggest peninsulas in the world. Around 90 percent of India’s external trade by volume and 70 percent by value are handled by ports. Twelve major ports and 205 nonmajor ports operate on India’s coast. Roads and railways, however, continue to be the dominant mode for cargo movement. Despite being the most cost-effective and efficient mode, water transport accounted for just 6 percent of freight transport in India in 2016–2017. The total cargo handling capacity at major and nonmajor ports stood at 2161.85 MMT5 as on March 3l, 2017. Total capacity utilization across all ports was 52.44 percent. During 2016–2017, the total cargo throughput through major and nonmajor ports was 1133.69 MMT.
The Ministry of Shipping’s Sagarmala program focuses on modernizing and developing ports, enhancing port connectivity, supporting coastal communities, and stimulating port-linked industrialization. Sagarmala aims to reduce the logistics costs for foreign and domestic trade. It also aims to double the share of water transportation in the modal mix. The government set up the Sagarmala Development Company Limited (SDCL) in 2016, under the Companies Act, 2013, to provide funding support to special purpose vehicles (SPVs) which were set up to ­implement projects and the Indian Port Rail Corporation Limited (IPRCL) to undertake port–rail connectivity projects under Sagarmala (NITI Aayog 2018b).

Inland waterways: Inland water transport (IWT) carries less than 2 ­percent of India’s organized freight traffic and negligible passenger ­traffic. The Inland Waterways Authority of India (IWAI) is mandated to develop and maintain infrastructure for fairway, navigational aids, and terminals. The IWAI also provides an enabling environment for private investment in cargo vessels and operational services. Until 2015, there were only five national waterways (NWs) in the country. In April 2016, 106 more waterways, spread over 24 states, were declared as NWs. The ministry is augmenting the capacity of NW-l under the Jal Marg Vikas project. The project will enable the movement of larger vessels of 1,500 to 2,000 tonnes on inland waterways. The government is also proposing to fund NWs through the Central Road Fund (CRF) (NITI Aayog 2018b).

Logistics: The objective is to achieve multimodal movement of cargo on par with global logistics standards and reduce the logistics cost to less than 10 percent of GDP from the current level of 14 percent. The Indian logistics industry employs more than 22 million people (as of 2016). Between 2011 and 2012 and 2015 and 2016, the logistics sector’s value grew at a CAGR of 7.8 percent. Existing logistics costs in India are, however, high, relative to other countries. Recognizing its importance for exports and growth, the government has included logistics in the harmonized master list of the infrastructure subsector. This will ease access to credit and simplify the approvals process for building infrastructure in the sector. The government has also created a new Logistics Division in the Ministry of Commerce and Industry, which will focus on the integrated development of the logistics sector, improving procedures and introducing new technologies. Infrastructure or transport quality is a particular area of concern for the logistics sector. About 35 percent of export–import cargo originates in or is destined for hinterland locations (NITI Aayog 2018b).

Communication: Communication plays a vital role in advancing economic growth and reducing poverty. The term communication generally means exchanging ideas and information by means of words, but this type of verbal communication is just a small component of communication. In the 21st century, people have access to a number of methods of communication that can be used with internal and also with external audiences. Determination of the method that is right is a vital decision that needs to be taken. The government is aware of the need to improve the quality and effectiveness of telecom infrastructure in India.

The information and communications technology (ICT) sector is predominantly a service sector and has redefined service delivery and the way business houses and the common man interact with the government. The telecom market can be split into three segments: wireless, wire-line, and Internet services. Rapid technological developments over the years have made it possible to provide services on a single platform due to convergence, since ICT infrastructure and services encompass all sectors of the economy and offer a unique opportunity to leverage upon the strength of all facets of ICT. Telecommunication has transformed the world, enabling innovation and enhancing productivity, connecting people and communities, and improving standards of living and providing opportunities across the globe. While changing the way individuals live, interact, and work, IT has also proven to be a key enabler for enhanced competitiveness and economic and societal modernization, as well as an important instrument for bridging economic and social divides and reducing poverty.

In order to enhance access to information, the policy emphasis is on building platforms that can leverage broadband and create public information infrastructure and move toward the next generation of governance to ensure accountability, transparency, information sharing, and collaboration. The key challenge now is to build and integrate national platforms, the geographical information system (GIS), and the cyber security payment gateway. Leveraging the fourth screen (i.e., the mobile phone) for reaching out to citizens is desirable, as it allows a much wider reach and in a language people can understand.

Since 1991, over the three decades, the telecommunications sector has witnessed phenomenal growth. The total number of telephone subscribers as on December 31, 2019 were 1172.44 million (wireless 1151.44 million and wireline 21.00 million).3 The private access service providers held 89.99 percent of the market share of wireless subscribers whereas BSNL and MTNL, the two public sector undertaking (PSU) access ­service providers, had a market share of only 10.01 percent as on November 2018.4

This growth has been driven by the technological revolution of mobile telephony, as well as by increased private sector competition. Opening up to private sector competition has led to huge inflows of investment from overseas. India has made tremendous progress in the rollout of basic communication infrastructure. There is a continued need for government and private sector support of initiatives that extend access to communication. The strategies should aim to expand communication use in governments, academic institutions, business, industry, trade, and so on. For this is required a growing telecommunications infrastructure and an adequate legal and regulatory framework.

The communications sector has emerged as the single largest sector of India’s economy with 18.62 percent share of the GDP in 2018–2019. In India’s transformation from an agrarian to a services economy, communication is recognized as the fastest growing sector. The communications sector will continue to be a growth engine for the Indian economy as there is plenty of potential for growth in the sector, considering that teledensity was over 90 percent in 2018. In India, communication has a positive impact on employment in the services and retail sectors, and is helping the country to emerge as a major manufacturing power. It is critical to empower every individual to connect to people, information, and services regardless of their location or income. This is a key element in the vision of a truly inclusive knowledge society.5

The Telecom Regulatory Authority of India (TRAI) is a statutory body that is the watchdog of the telecommunications sector in India. The main objectives of TRAI are to provide a fair and transparent policy environment that promotes a level playing field and facilitates fair competition and to create and nurture conditions for the growth of telecommunications in the country in a manner and at a pace that will enable India to play a leading role in the emerging global information society. Through an amendment to the TRAI Act, a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) was established to take over the adjudicatory and disputes functions from TRAI.6

Given the relevance of digital connectivity to economic growth and the need to eliminate the digital divide by 2022–2023, India aims at achieving the following (NITI Aayog 2018b):

1. Physical digital connectivity across all states, districts, and gram panchayats (GPs)
2. Delivery of government services digitally by 2022–2023
3. Hundred percent basic digital literacy across the country to be able to leverage the benefits of digitization

To propel the sector on a growth path, the government has launched the National Digital Communications Policy, 2018, which envisages attracting investments worth $100 billion in the telecommunications sector by 2022.7 The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumers at affordable prices. Over the next five years, rise in mobile phone penetration and decline in data costs will further add new Internet users in India, creating opportunities for new businesses. The government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies. The thrust of the policy is on raising the competitiveness of the Indian telecom sector, to make it a world leader, while at the same time making available a variety of services on a single platform utilizing the technological advancements taking place in the sector. Spectrum, which is an important input, has been a limited and reusable resource. With the introduction of new technologies, high-bandwidth applications, and an increasing user base, there will be a requirement of significant amount of additional spectrum. While effective spectrum planning in this regard needs to be carried out, the requirement of spectrum in 60 GHz and above bands for backhaul purposes, audit of spectrum usage, and refarming of spectrum to ensure efficient utilization should also be taken into account in the coming years (GoI 2013, 12th Five Year Plan, Vol-II).

The new National Digital Communication Policy 2018 sensibly stresses affordability and availability over direct revenues from licensing and spectrum allocation. The policy’s vision of offering universal broadband connectivity at 50 Mbps to every citizen is welcome. High-speed broadband will fuel the growth of new transactions and businesses based on them, and the income this generates will grow the government’s revenue as well. The demand for wireless spectrum, a key natural resource, has grown at a blistering pace. This calls for bringing into play unused bands of spectrum and efficient sharing of spectrum. The policy allows spectrum sharing, leasing, and trading. So long as interference with the business of the primary allottee of a specific chunk of spectrum is avoided, it should be legally tenable for others to use unused spectrum to enable diverse communications.

Ideally, the regulator should set the parameters for revenue sharing between users of unused spectrum and the latter’s allottees. Sharing of resources should extend to infrastructure, such as optical fiber, which municipalities and state governments, among others, should be encouraged to build and lease, following common carrier principles, to increase capacity. The government is aware of the demand for cross-sectoral coverage of regulation when near-zero latency communications under 5G bring about new businesses. Remote surgery can be piloted in the lab but not implemented without insurance regulation gearing up for it (The Economic Times, March 25, 2019).

The problem of PSU telcos: A question is raised whether the two PSUs telcos should be shut down since their loss levels are very high. According to TRAI, the market share of BSNL and MTNL is less than 10 ­percent. Both BSNL and MTNL are loss-making companies. BSNL has a staff of 1.76 lakh on its rolls, and the company has posted a net loss of ₹13,804 crore in fiscal 2018–2019. The company has been making losses continuously since 2009–2010 and has been declared “incipient sick.” MTNL, which has around 22,000 employees, has also been witnessing continuous losses over the last few years.8

The government’s main expenditure is in funding annual losses and it needs to fund a generous voluntary retirement scheme (VRS) for both PSUs. While MTNL is largely present in Delhi and Mumbai, BSNL has a wider network. TRAI data says BSNL had 116 million subscribers in August 2019. The state-run firms are struggling to target new customers with private players like Reliance Jio, Bharti Airtel, and Vodafone Idea offering lucrative deals. The central government is of the view that telecom is a strategic sector and a public sector presence in it is a must (Manchanda 2019). NITI Aayog has suggested shutting down both the public sector companies, BSNL and MTNL. The two companies have assets that are hugely lucrative for private operators. BSNL, as of March 2018, owned land worth Rs 70,000 crore ($96.5 million) and buildings worth ₹3,760 crore ($5.2 million). According to Mahesh Uppal, director at communications consulting firm ComFirst India,

“BSNL and MTNL have built an envious portfolio of assets such as fiber, towers, real estate etc. They also enjoy easier right of way compared to private operators. This gives them a huge advantage which they could use to revamp the companies with a different business model. They could look at becoming an ‘operator of operators’ instead of being a consumer-facing company.” Today’s telecom battles are fought with promoters’ funds, but since the government isn’t doing so, it’s not really a level playing field for the two firms. Telecom is a strategic sector for the government, which believes that these two companies can be revived in due course of time if the salary bills come down (Pandey 2019).

The government in October 2019 announced that neither MTNL nor BSNL is being closed or disinvested. Instead a revival package of ₹68,751 crore ($93.7 million) was pronounced for the debt-ridden BSNL and MTNL, which included ₹17,169 ($23 million) crore on account of ex-gratia on VRS and ₹12,768 crore ($17 million) due to preponement of pensionary benefits spread over a period of 10 years through budgetary allocation for VRS. Under the scheme, over 1 lakh BSNL and 16,300 employees at MTNL were eligible for VRS, which was rolled out on November 4, 2019. The revival package announced by the government also includes full cost of spectrum (excluding GST) of ₹14,115 crore ($2 million) for BSNL and of ₹6,295 crore ($0.9 million) for MTNL, to be funded by the government through equity infusion and subscription to noncumulative preference shares, respectively. The GST component of ₹3,674 crore ($0.5 million) on the cost of spectrum will also be funded through budgetary allocation from the government. The government has also approved monetizing ₹38,000 crore ($8 million) of assets in the next four years and issuance of sovereign guarantee bonds of ₹15,000 crore ($2.1 million) to be raised and serviced by BSNL and MTNL to meet their operational expenses.

By December 3, 2019, nearly 92,700 employees of BSNL and MTNL had opted for voluntary retirement. In the case of BSNL, over 78,300 employees opted for VRS, which is over half of the company’s total manpower. As many as 14,378 employees of MTNL, accounting for 76 percent of the total strength, opted for the VRS. BSNL estimates that the reduction in employee strength will help the company reduce the wage bill by about 50 percent to ₹7,000 crore ($1 million) annually from ₹14,000 crore ($2 million) at present. In the case of MTNL, 14,378 employees have opted for VRS. This will reduce the annual salary bill from ₹2,272 crore ($0.32 million) to Rs 500 crore ($0.14 million). Now MTNL is left with 4,430 employees, which is sufficient to run the business. Wages bill has been one of the prime reasons for both debt-ridden PSUs running into loss.9

Given the consolidation in the telecom market, the merger of BSNL and MTNL would be good for the consumer. BSNL is vital to connectivity, wireless and wired, in rural areas and tier-2 and tier-3 towns. The company needs an independent, dynamic management to provide competition that is secure, technologically agile, and will offer a standard of integrity that will elevate conduct across the sector. Political will must be summoned to turn the merged entities around.10 Even after all this is given, it is not clear whether this is enough to ensure the two telcos will turn around (Jain 2019b).

Civil aviation: The World Economic Forum’s Global Competitiveness Report, 2018 ranks India as 53rd out of 140 countries worldwide in air transport infrastructure. The Airport Authority of India (AAI) aims to bring around 250 airports under operation across the country by 2020. The Ministry of Civil Aviation’s regional connectivity scheme, UDAN, is a 10-year scheme, which will promote balanced regional growth and make flying affordable for the population. It will help enhance connectivity to the country’s unserved and underserved airports. India’s civil aviation sector has been growing steadily: The number of passengers was 158 million in 2016–2017. Domestic passenger traffic increased at a CAGR of almost 10 percent between 2007 and 2008 and 2016 and 2017 and international passenger traffic grew at a CAGR of 8.07 percent during the same period. Between 2014 and 2015 and 2016 and 2017, in particular, traffic growth in the domestic passenger segment was 48 ­percent and in the international segment 20 percent. India is also catching up with other leading aviation markets in terms of market penetration. There was an increase in air cargo, both domestically and internationally, in 2016–2017. International Air Transport Association (IATA) has forecast that India will cross over into the top 10 air freight markets in 2018–2019 (NITI Aayog 2018b).

There is talk about the revival of 50 airports and viability gap funding for improving aviation infrastructure in the northeast states under the flagship regional connectivity scheme. It will also boost the regional connectivity scheme of UDAN (Ude Desh ka Aam Nagrik), which will connect 56 unserved airports and 31 unserved helipads across the country.

In sum, India seems to be at the cusp of an infrastructure revolution. The initiatives undertaken by the government in the last few years have imparted a significant boost to the infrastructure sector. The infrastructure sector witnessed significant growth and increased investments over the last 10 years. The government of India is expected to invest highly in the infrastructure sector. As of 2003, about 59 percent of the investments in the infrastructure sector was sourced from the public sector. There is no escape from raising the public sector levels of infrastructure investment since some infrastructure services are really public goods whereas others exhibit partial public good characteristics (Mohan 2003). There is need for better private sector participation and more refined public–private partnership (PPP) models that ensure profitability. With appropriate policies in place and their correct implementation, the Indian infrastructure sector will propel the growth of the Indian economy further.

The National Investment and Infrastructure Fund (NIIF) was formed in 2016, jointly owned by the government of India and investors from India and abroad, with the objective of drawing more investments in the infrastructure sector. The NIIF aims to create long-term value for domestic and international investors seeking investments in various Indian infrastructure-related sectors such as energy, transportation, housing, water, waste management.11 Other important initiatives by the government, such as greater infusion of capital to improve the capital adequacy ratio of banks, improving the regulatory environment for faster project clearances, introduction of long-term infrastructure bonds to raise more funds, provide the necessary support for enhancing the role of the sector in propelling the economic growth of the country. The government approved the new Metro Rail Policy in August 2017, which makes the PPP component mandatory for availing financial assistance for all metro projects. The policy opens a big window for private investments across a range of metro operations. The government has also introduced a number of new and innovative models in different infrastructure sectors to boost growth. Private sector participation has broadly taken place through the corporatization of existing PSUs (e.g. GAIL, ONGC, IOC), greenfield investment for development of new projects, PPP in the form of Build-operate-transfer (BOT) or Build-own-operate-transfer (BOOT) model in the road sector, and concession agreements with the private sector such as rehabilitate, operate, and transfer (Lakshmanan, 2008).

Endnotes

1. 1. IBEF. October, 2019. “Infrastructure Sector in India.” https://www.ibef.org/industry/infrastructure-sector-india.aspx, (accessed September 5, 2019).
2. 2. IBEF Roads, https://www.ibef.org/download/roads-jan-2019.pdf, (accessed January 29, 2020).
3. 3. Business Standard, January 18, 2019 India’s telephone subscribers base rises to 1193.72 million end November 2018 https://www.business-standard.com/article/news-cm/india-s-telephone-subscribers-base-rises-to-1193-72-million-end-november-2018-119011800974_1.html (accessed March 2, 2020)
   Telecom Regulatory Authority of India (TRAI), Press Release No.17/2020 https://main.trai.gov.in/sites/default/files/PR_No.17of2020_0.pdf (accessed March 3, 2020)
4. 4. GKToday. January 19, 2019. “TRAI Releases Tele-density Data of India: Key Facts.” https://currentaffairs.gktoday.in/trai-releases-tele-density-data-india-key-facts-01201964736.html, (accessed ­September 5, 2019).
5. 5. SiliconIndia. n.d. “Communication Sector to Become Largest Contributor to India’s GDP.” https://www.siliconindia.com/shownews/Communication_sector_to_become_largest_contributor_to_Indias_GDP-nid-60492-cid-7.html, (accessed September 09, 2019).
6. 6. GKToday. January 19, 2019. “TRAI Releases Tele-density Data of India: Key Facts.” https://currentaffairs.gktoday.in/trai-releases-tele-density-data-india-key facts 01201964736.html, (accessed ­September 09, 2019).
7. 7. IBEF. August, 2019. “Indian Telecom Industry Analysis.” https://ibef.org/industry/indian-telecommunications-industry-analysis-­presentation-august-2019, (accessed September 12, 2019).
8. 8. Hindustan Times. October 23, 2019. “In Revival Plan for MTNL and BSNL, Cabinet Announces Merger of the Two.” https://www.hindustantimes.com/india-news/in-revival-plan-for-mtnl-and-bsnl-cabinet-announces-merger-of-the-two/story-YZz9eKU21TD6bejkxdRTkO.html, (accessed December 3, 2019).
9. 9. The Economic Times. December 4, 2019. “About 92,700 BSNL, MTNL Employees Opt for VRS; Firms to Save Rs 8,800 cr Annually.” https://economictimes.indiatimes.com/industry/telecom/telecom-news/92700-bsnl-mtnl-employees-opt-for-voluntary-retirement/articleshow/72352725.cms, (accessed December 4, 2019).
10. 10. The Economic Times. April 1, 2019. “PSU Telcos: Dinosaurs in the Digital Age?” Editorial Comment. https://economictimes.indiatimes.com/blogs/et-editorials/psu-telcos-dinosaurs-in-the-digital-age/, (accessed September 2, 2019).
11. 11. NIIF. January 22, 2018. https://niifindia.in/national-investment-and-infrastructure-fund/, (accessed March 4, 2020).