About 25 years ago, around the time we started publishing Indian Infrastructure, a new political slogan also started doing the rounds – “Bijli, Sadak, Pani” (Power, Roads, Water). This signified a new political campaign, a focus on building infrastructure. The slogan crossed party lines as it resonated with voters. Now, 25 years later, whatever the size, shape and ideology of a political party, voters expect delivery on infrastructure.
Over a generation that focus has transformed India’s infrastructure, and we have also seen how better infrastructure transforms growth and expectations of growth. In 1998, most Indians struggled to live comfortably on a day-to-day basis, and business struggled due to infrastructure constraints.
The power grid did not touch millions of villages and power cuts were endemic. Basic telephony barely worked and mobile services had barely got off the ground. The internet was dial-up and an urban curiosity. Highways were largely single lane. It took weeks for goods to get from one part of the country to another, and months to export anything. There was not enough public transport within cities. Millions of people cooked with kerosene because gas was hard to come by.
Now, the grid reaches pretty much everywhere, including most remote villages. Moreover, power based on solar and wind has penetrated far-flung off-grid areas. Everybody has a mobile phone and most have data plans, enabling a host of digital services. Indeed, India’s digital public infrastructure, which has jet-propelled financial inclusion, is built around mobile broadband. There is the promise of 5G and 6G providing another boost.
Better water supply and sewerage systems make life bearable in high-density, urban environments. There are metro systems in many cities and more are coming up. Improved rail, road and air networks allow goods and people to travel more freely. Physical connectivity and the internet are both crucial when it comes to integrating inaccessible regions like the Northeast and the Himalayas with the mainstream. More port capacity equates to faster imports and exports. All this has helped India’s GDP growth rates to rise.
Elsewhere in this issue, there are a series of essays, each focused on a specific sector, and every one of them is written by a domain expert. There, you will find the details of how each of those sectors has moved through cycles of development, and the progress in each.
So here, let’s take a broad look at the future across sectors.
While there has been enormous progress and a sea change in user expectations, it is also clear that India has to continue building capacities through the foreseeable future and ideally, needs to do so at an accelerated pace. In order to do this, India also needs to face up to multiple issues and challenges, some of which have only been partially dealt with.
India’s population grew by roughly 40 per cent (estimated) between 2001 and 2021. During this period, India also saw the largest urbanisation drive in history. Hundreds of millions migrated to existing cities in search of work. Thousands of villages turned into towns, with newly minted municipalities.
The census definition of a town is an area with a population density of at least 400 persons per square km, where at least 75 per cent of the male workforce is engaged in non-agricultural activities. Densely packed urban areas generate far more productive economic activity. But densely populated urban areas also require far more public transport capacity, better roads, more housing, better sewerage and water supply, more energy availability per capita, more internet bandwidth, and so on. Population growth may slowly level off, but urbanisation will inevitably continue.
India’s future infrastructure build-out has to keep pace with this combination of rising population, increasing urbanisation and the resulting higher demand. Moreover, that demand growth will not be linear in nature. As income grows, capacity demands will grow exponentially.
In per capita terms, India’s infrastructure capacity is still well below that of most middle-income countries. So as per capita income grows, policymakers must plan for a future where far more capacity will be required across every infrastructure segment.
Climate change has become a cause for widespread and increasing concern. India must find ways to improve sustainability and prevent environmental degradation even as it develops infrastructure. This means very strong policy commitments in moving towards zero carbon.
There is a further challenge. Climate change has become a cause for widespread and increasing concern. India must find ways to improve sustainability and prevent environmental degradation even as it develops infrastructure.
This means very strong policy commitments in moving towards zero carbon, not only in the transport and energy sectors but also in sectors such as construction, and in the production of key materials such as steel, other metals and cement, as well as the development of new technologies that have less impacts. Apart from emissions reduction, setting up recycling systems for plastics, for electronics, grey water recovery, etc. are all essentially facets of the move towards long-term environmental sustainability.
This is going to be a major challenge since India’s current energy mix is heavily dependent on fossil fuels and likely to remain that way for decades. There have been many lessons learnt in the past 25 years. Policymakers have discovered, unsurprisingly, that creating big infrastructure requires tackling multiple large issues. Doing this has taken numerous policy changes and tweaks by successive governments.
Starting from scratch, policymakers had to conceptualise and develop regulations for various infrastructure sectors. As well as tackling issues specific to each sector, they had to pay heed to solving cross-sector issues including land acquisition, financing models, dispute resolution and statutory clearances.
Sometimes the solutions did not work well in the first or second iteration, and further policy changes were required as problems surfaced. It took quite a few years and a few stumbles before policy clarity arrived in many sectors and, arguably, there are still many issues that have not been optimally dealt with.
Land is a prerequisite for any kind of infrastructure development, and land acquisition remains a complex and legally challenging process. Problems in land acquisition are perhaps the single largest cause for delays in projects. Associated issues arise with right of way. Land acquisition models have varied from state to state and sector to sector and project to project.
Another major area of concern is financing modes. This too cuts across sectors. India did not (and still does not) possess surplus capital to indulge in building useless “bridges to nowhere”, or coping with bankruptcies, or accepting long project delays due to financial constraints.
Infrastructure finance requires long-term capital and building infrastructure is capital intensive. Typically, it takes years to build and commission a project. Revenue generation comes only after that. Of course, once a viable project is up and running, it can generate returns for decades.
So whether financing is done via loans or equity (usually a complex mixture), financing structures have to be created with these characteristics and constraints in mind. India has experienced situations where aggressive bidding led to bankruptcies in road construction and issues in telecom. The power sector has faced financial stresses for decades.
The long-gestation nature of the business makes it difficult, or impossible, for banks to lend safely due to asset-liability mismatches. Typically, across the globe, infrastructure financing is largely done by insurers (who have the long-term capital required to wait a decade for returns) or by pension funds (ditto).
But India did not have a vibrant insurance sector 25 years ago – insurance was a government monopoly and government insurers were ill-quipped to understand and finance infrastructure. So financing models had to be thought through carefully.
There has been a great deal of experimentation and many non-performing loans before the finance pipelines have stabilised. The creation of specialised infrastructure financing outfits such as infrastructure investment trusts (InvITs) may have gone some way in addressing this situation. Creating a secondary bond market that is deep and liquid is another prerequisite and this has not happened, so far.
A third area of concern is lack of contractual clarity. Ambiguities, coupled to a very slow justice system, has meant years of litigation in some instances. Alternative means of dispute resolution have had to be devised. In a sector such as telecom, for instance, litigation has arguably slowed network roll-outs at various times.
In many instances, the existing infrastructure was government owned and controlled. Policy had to be devised to allow the entry of private capital and know-how and, importantly, on terms that private enterprises found acceptable.
In some cases, such as in the power sector, this has happened through unbundling and offering the private sector a chance to enter into disaggregated segments. Further unbundling and open access could well lead to higher efficiencies in the power sector.
In other cases, like in telecom, gas distribution and airport management, the government has licensed service providers, or auctioned off the right to management of assets. In yet another model (port terminals, metro systems, railways), the government has opted for public-private partnership (PPP) structures. In certain instances (mining, exploration, ports), the government has opened up the sector, more or less completely.
Policy and regulation have also followed different pathways in many areas. In certain sectors, the regulator is an independent statutory authority; in others, it’s a government-controlled agency. Given the bewildering complexity of the issues at hand, and the sheer scale, it is commendable that India’s policymakers have found workable solutions in many cases.
But it could be argued that some of these solutions are not optimal and, as needs evolve, policy must also evolve.
For example, the power sector continues to suffer from endemic weakness in terms of unacceptably high transmission and distribution losses, and this has translated into persistent financial weaknesses that have been intractable and necessitated multiple bailout schemes over several years. In telecom, the situation has changed from being hypercompetitive to one where an effective duopoly exists and the financial stresses of two other large players are cause for serious concern.
The railways have not yet been able to leverage the PPP model effectively when it comes to operations. However, they have been able to use PPPs to source new equipment, and they do contract out many services.
Most municipalities have not been able to raise financing to renew and expand their infrastructure, nor have they been able to attract private enterprise. This is a critical issue since urban infrastructure is lacking or poor in many cities and this has to be managed by the relevant urban local body. Finding an effective model to attract private enterprise may be the only way to service current and future demand across the urban landscape.
While infrastructure creation, maintenance and operations all create huge employment opportunities, this is not low-hanging fruit. It doesn’t happen automatically. Every sector has struggled to generate a workforce with the skills and scale required. This is another challenge that must be addressed.
All these are obviously intractable problems and a holistic approach is required to tackle them. Regulators, policymakers and financiers must work in tandem with all stakeholders to find solutions. To the government’s credit, it appears aware of this and is looking to create the right governance structures to increase efficiencies.
Looking back, the progress over the past 25 years has been truly impressive. But this has just laid the foundation for the even faster development that will be required to meet the demands of the next decade and beyond.