New Game Plan

NITI Aayog sets development agenda for the next three years

Recently, in April 2017, NITI Aayog released a three-year action agenda laying out India’s development strategy. Infrastructure is a key component of the action plan which is for the period 2017-18 to 2019-20. For infrastructure, the agenda focuses on targets for the next three years as well as the possible action to be taken by the central and state governments to achieve these targets. It has also highlighted some of the key proposals for policy changes in certain sectors that require urgent attention.

Indian Infrastructure presents a snapshot of the agenda for key infrastructure sectors…

Coal

The top priority of the government in the coal sector is to enhance the country’s production of the fuel. The first step towards this will be to explore 25 per cent of the untapped coal-

bearing area in order to ensure the availability of more blocks for mining. By 2019-20, Coal India Limited’s (CIL) production is planned to be increased to 1 billion tonnes (bt) (from the present level of about 536 million tonnes [mt]) and Singareni Collieries Company Limited’s production by about 20 mt from the current level of 60 mt. The government also plans to step up efforts to convert 25 per cent of the 139 bt of coal reserves in the “indicated” category to the “proved” category by engaging exploration companies with a proven track record.

Another important development expected in the near future is the opening up of the coal mining sector for commercial mining. A long-debated issue, the government finally seems to have a clear plan in place for this. A consultation paper has been released by the Ministry of Coal for stakeholder comments and four blocks have already been identified. The first set of auctions is expected to take place by the end of the year. Simultaneously, it is also important to start pricing coal along commercial lines.

The government is also planning to spin off CIL’s subsidiaries as independent public sector entities so that they can develop their own business models and strategies. Among the other action points for the coal sector are improving the output per man-shift from underground mines, completing three critical railway lines (Tori-Shivpur, Jharsuguda-Barpalli and Mand-Raigarh) for faster coal evacuation, reducing the use of low quality coal, adopting clean coal technologies, commissioning 15 new coal washeries in line with Ministry of Environment, Forest and Climate Change guidelines, and expediting the process of transfer of mining leases for captive mines.

Electricity

In the next three years, in terms of power generation capacity, 62 GW is to be added through conventional sources, 6.9 GW through large hydro projects, 15.8 GW through wind and 53 GW through solar. This will require concerted efforts on the part of the government, especially in the case of hydro projects where rehabilitation and resettlement issues are challenging.

Plant load factors (PLFs) of gas-based power plants (currently about 23 per cent) must be increased to achieve grid parity. Cross-border trade needs to be encouraged. For this, it is important that the joint venture hydro projects in Bhutan be expedited and the transmission corridor on the Indian side be completed for the evacuation of electricity.

On the transmission and distribution (T&D) front, a number of measures are required to reduce T&D losses and aggregate technical and commercial losses. Transmission capacity in the southern part of the country should be increased to 18.4 GW in the next three years to ensure a robust national grid, and 100 per cent metering, indexing and real-time monitoring of all 11 kV feeders must be achieved. Efforts must also be made to closely monitor the annual targets of the Ujwal Discom Assurance Yojana.

Oil and gas

The action plan spells out a clear roadmap for augmenting domestic capacity for the exploration, production, refining and distribution of hydrocarbons. On the exploration and production front, it is proposed that another 25 per cent of the present sedimentary area will be awarded for exploration. Some of the key suggestions by NITI Aayog to the government are launching the Open Acreage Licensing Policy by March 2018, undertaking a seismic survey of unawarded acreages, rationalising all discoveries under the production sharing contract, and establishing the National Data Repository in the near term. In addition, it has been suggested that the upstream and downstream regulatory framework be altered to enable the simultaneous exploitation of all hydrocarbons, a new policy to resume exploration in the “S” type small blocks (that are facing contractual violations) and another policy for sharing of upstream infrastructure by new developers be introduced.

In the refining and distribution segment, sustaining export capability (of refined products) has been recommended through the setting up of new refineries (with upgraded fuel quality standards) by 2019. Meanwhile, liquefied natural gas (LNG) receiving capacity is expected to be doubled by 2022. For LNG absorption, NITI Aayog has proposed that a plan be launched by 2019-20 to connect LNG terminals to markets, and this is to be supported by requisite changes in downstream pricing policies. At the same time, a policy for the creation of commercial and strategic storage of gas be put in place. Tax rationalisation for the import and sale of petroleum products, formulation of near-term action plans by oil marketing companies, and changes in bidding and regulatory practices of the Petroleum and Natural Gas Regulatory Board to extend the city gas distribution network to 326 cities are other key recommendations.

Ports and shipping

Key challenges hampering the growth of the port sector are the strict regulatory regime, the lack of adequate infrastructure and investment, and the absence of a competitive shipbuilding industry. According to NITI Aayog, there is a need to improve the standards at Indian ports to reduce logistics costs and improve export efficiency. For this, several steps have been recommended. These include easing the regulatory environment, digitising customs procedures, improving technologies used in tracking consignments and adopting additional technology systems to ensure timely deliveries.

Given the inadequate capacity of the coastal fleet and the increasing need for containerisation, further relaxation of the cabotage law is required, at least until the coastal shipping sector expands to meet the existing demand. Easing the cabotage law beyond allowing Indian flag vessels the right of first refusal at all container handling ports will promote competition in the short term.

Further, there is a need to provide a level playing field to Indian flag vessels versus their foreign counterparts to increase the number and capacity of the former. For this, duties on bunker fuels need to be waived and taxes on individuals working on Indian vessels need to be relaxed.

Locations where deep draught ports can be developed need to be identified. In places where it may not be technically or financially feasible to create deep draught ports, the possibility of creating barges with low draught levels should be explored.

Facilitating the connectivity of non-major ports to the hinterland should be another focus area. The development of logistics parks close to ports can also be looked at to enhance connectivity.

To improve inland waterway connectivity, efforts should be made to develop deeper river stretches of at least 2.5-3 metres. There is also a need to ensure adequate maintenance of rivers, including continuous dredging to maintain adequate water depth for servicing shipping lines, to facilitate year-round serviceability.

Meanwhile, NITI Aayog has suggested that state governments should start work on dredging and channel stabilisation to create about 20 new ports along the Brahmaputra and Barak rivers. The protocol for inland waterways between Bangladesh and India should also be extended for at least 10 years to reduce uncertainty, and restrictions on river-sea movements need to be eased.

Roads

The action plan has focused quite extensively on the maintenance aspect of the road sector. The allocation towards capital expenditure for the construction and maintenance of roads is proposed to be increased from Rs 310 billion at present to about Rs 860 billion by 2019-20.

It is recommended that the National Highways Authority of India should lead the development of an action plan to measure road quality, particularly riding quality and the performance of pavements and bridges. The Ministry of Road Transport and Highways (MoRTH) should encourage research in the areas of innovative road construction technologies and the use of durable materials. Heavy fines should be imposed on contractors for poor operations and maintenance. Non-lapsable funds under the Central Road Fund should be utilised for road maintenance. For 2017-18, the MoRTH has allocated Rs 31.08 billion towards the maintenance of roads and highways, just about 5 per cent of the ministry’s total expenditure, and much lower in contrast to the US government’s allocation of about 48 per cent towards maintenance. A definitive criteria need to be defined for the conversion of state highways into national highways.

In the area of road safety, the strengthening of rules governed by the Motor Vehicles (Amendment) Bill, 2016 is crucial. Moreover, the creation of road safety boards to effectively set and enforce rules is important. By 2020, the priority should be to improve road safety in states and union territories exhibiting high fatality rates and reduce the 700 blind spots identified by half.

By 2020, the central government aims to connect all unconnected villages with all-weather roads under the Pradhan Mantri Gram Sadak Yojana. This will complete the remaining 35 per cent of the country’s road core network.

By 2018, all designated toll plazas should be equipped with electronic toll collection (ETC) systems and by 2020, the ETC systems operational on national highways should be linked to state highways to ensure the seamless movement of traffic.

Civil aviation

The high cost of air travel, issues with the allocation of traffic rights and high aeronautical charges continue to hinder airport development. High aviation turbine fuel (ATF) costs, coupled with a host of duties and taxes ranging from 19 to 44 per cent, account for about 40 per cent of airlines’ expenditure. Since ATF does not fall under the goods and services tax (GST) regime, a reduction in excise duty on ATF from 14 per cent to 8 per cent will bring down costs significantly. In 2016-17, the excise duty was 8 per cent and was revised subsequently due to a substantial drop in oil prices. However, the cost of this reduction to the exchequer is pegged at about Rs 6 billion.

Tariff determination is another grey area in the sector. Merits of the hybrid till and single till models should be judged transparently to formulate a consistent tariff policy for public-

private partnership (PPP) airports as well as Airports Authority of India airports. India could move to a hybrid till structure once its hub-and-spoke model is well established.

Appeals for tariff determination for the second control period to be implemented at the Delhi and Mumbai airports have been pending with the Airports Economic Regulatory Authority Appellate Tribunal since 2012 and have resulted in a delay in the tariff revisions for the second control period (2014-19). As a result, these airports continue to charge higher tariffs making air travel more expensive for passengers. The decision on this matter must be expedited and the tariff structure adjusted appropriately.

A provision for credit under the GST for airport infrastructure development could help reduce costs and facilitate infrastructure creation. The current proposal to offer open skies to countries beyond a 5,000 km radius and auctioning of traffic rights to countries within a 5,000 km radius will increase connectivity. However, this may lead to foreign carriers using their own hubs rather than Indian hubs. India should therefore include provisions for domestic hub development while auctioning traffic rights. In a bid to cross-subsidise the less frequented routes, the bidding of slots through hub airports can be linked with the bidding for non-hub or non-major routes.

Railways

The railway sector suffers from issues such as low capacity, poor utilisation of existing capacity, low safety levels and inferior quality of service delivery in the passenger segment. While merging the railway budget with the Union budget is a step in the right direction, stepping up financing to resolve bottlenecks will require specific actions.

Freight rates are kept high to cross subsidise passenger fares. NITI Aayog recommends that by 2020, substantial rebalancing of fares be done to make rail freight more affordable, especially on non-major routes, in a bid to divert cargo traffic from roads to railways. A national rail regulatory authority can be created to determine rail fares and rebalance passenger and freight tariffs.

Improvement in the efficiency of freight trains should be ensured by increasing the speed of selected trains from 25 kmph to 50 kmph by 2020. Meanwhile, the locomotive horsepower to trailing ratio should be increased from 1 to 1.2 by 2018 and to 1.5 by 2019. Universalisation of 25 tonne axle load for the progressive adoption of longer and heavier trains for bulk cargo can also be looked into.

Completion of the western and eastern dedicated freight corridors (DFCs) in the next three years will help decongest heavily utilised routes, especially those that transport coal and iron. The newly proposed DFCs must be planned in line with the road network in the country.

It is crucial to bridge the demand-supply gap by creating additional capacity. While undertaking any major increases in the rail network will take beyond three years, the Ministry of Railways (MoR) should develop an engineering plan for this expansion by 2020. The end goal should be to increase the network size from 66,000 route km to 80,000 route km by 2032. Plans should also be drafted for increasing the length of routes with multiple electrified lines to approximately 40,000 km and increasing gauge conversion by 3,700 km by 2032. Meanwhile, the development of the Mumbai-Ahmedabad high speed rail (HSR) corridor should be fast tracked by National High Speed Rail Corporation Limited. In the next three years, the feasibility of other similar corridors should be assessed. At the same time, semi- HSR regional connectivity must be enhanced through the construction of such lines on the planned DFC routes.

Railway stations should be equipped with modern technologies such as self-service ticketing counters, digital signage, luggage screening machines, escalators and elevators. In February 2017, Phase I of the project entailing the redevelopment of 400 stations on a PPP basis was launched.

Going forward, the MoR should develop a comprehensive programme to improve asset reliability by 10 per cent by 2019. Targets should also be set to achieve zero fatality rate by 2019 through infrastructure development. At the same time, Indian Railways should eliminate the 6,113 unmanned level crossings on broad gauge lines.

Urban development

The central government has already set specific targets to be achieved under ongoing programmes during the three-year period from 2017-18 to 2019-20. Under the Pradhan Mantri Awas Yojana – Housing for All Mission, the government plans to build over 20 million houses for the urban poor. From 2017-18 to 2019-20, the mission will cover a total number of 7.4 million households.

The key focus areas for the Atal Mission for Rejuvenation and Urban Transformation programme include the approval of state annual action plans of all states by mid-2017, the implementation of all projects for universal coverage of drinking water and sewerage, the development of 200 parks, and the implementation of an 11-point urban sector reform agenda and capacity building programmes.

Further, specific outcomes related to smart parking, central command and control centres, wastewater reuse, smart metering, energy efficient street lighting and intelligent traffic management systems have been set under the Smart Cities Mission.

Under the Swachh Bharat Mission, the key outcomes to be achieved during 2017-18 and 2018-19 include 4,041 towns to be made open defecation free, 100 per cent door-to-door waste collection, and 511 MW of electricity generation from solid waste.

With regard to urban transportation, the government plans to add about 200 km of metro rail projects over the next three years. About 200 km of bus rapid transit systems will also be operationalised during the period. Further, the government plans to set up a unified metropolitan transport authority in each city with a population of over a million. The authority will be responsible for preparing an integrated public transport plan for the city.

A set of action plans has been prepared by NITI Aayog to promote low-income housing. These include the replacement of the current rent control laws by a modern tenancy law (giving freedom to tenants and owners to negotiate rent), the provision of conclusive ownership titles and dormitory housing for migrant workers, and the introduction of a rental voucher scheme for the urban poor in the 100 smart cities.

Further, it has recommended the establishment of a dedicated authority called the Waste to Energy Corporation of India for promoting the development of waste-to-energy (WtE) plants through the PPP route. The authority could play an important role in fast-tracking the development of WtE plants across 100 smart cities by 2019.

Public-private partnerships

To reinforce the existing PPP framework, it is important to put in place a proper monitoring mechanism and reinforce various institutional reforms to ensure strict adherence to the set processes.

For the sustained implementation of PPP policies, an infrastructure committee with the finance minister or prime minister as the chairman and secretaries from relevant departments as members can be set up. The committee could aim to fast-track the resolution of inter-ministerial policy issues.

The guidelines for the monitoring framework of PPP projects issued in 2012 should be adopted by all ministries/departments by the end of 2017 to make it fully effective. Further, it is recommended that an internal dispute resolution committee with both public and private stakeholders and a neutral third party be appointed at the beginning of a project.

By 2018, the standardised documents should be updated to include a weightage for technical qualification parameters (such as a technical score) to be used from the request for qualification stage to the request for proposal stage in order to avoid aggressive and unviable bidding.

The role of India Infrastructure Finance Company Limited needs to be revisited and expanded. The institution should leverage its balance sheet to extend guarantees and provide subordinate debt up to 10 per cent of the project cost, with a moratorium of 12 years on the repayment of the principal. Meanwhile, it should discontinue its scheme for takeout financing, which relies on sovereign guarantees, and instead engage in refinancing activities via an infrastructure debt fund structure, which would raise capital from the market without the sovereign guarantees.

Providing low-cost debt instruments, building the capacity of lending institutions, resolving the issue of non-performing assets, and operationlaising the National Investment Infrastructure Fund are the other recommendations of the policy think tank.

The plan is certainly a sound one, as it is wide- ranging in its scope and highlights some of the important policy loopholes which require urgent attention. It is obvious that while some of the action points will be achieved in the next three years, others will take shape only subsequently. However, for the country to return to its 8 per cent growth trajectory in the next two-three years, speedy implementation of these steps is not just a choice, but a necessity, especially if we are to close the infrastructure deficit that is constraining economic growth.

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