News Detail

• India and China are the two powers that will shape Asia’s future in the 21st century. It is logical that the world makes comparisons about the socio-economic progress in these two countries, where around one third of mankind lives. Due to insufficient historical and cultural knowledge, many of these comparisons go wrong. In some cases, it may also be wishful thinking that clouds sober judgement. Some Asia “experts” are starry-eyed about China and deliberately downplay political risks. However, there is one comparison where India’s deficiencies are very obvious. We think of the development of a modern nationwide infrastructure, particularly in the field of transport.
• In recent years, India has made progress, but, at the same time, China has not stood still and in many cases the distance between the two neighbours has grown. While India used the occasion of the 2010 Commonwealth Games to spruce up its capital New Delhi, China used a stimulus package of over $1trillion to fight the impact of the 2008 financial crisis. A substantial part of that money ended up being invested in gigantic infrastructure projects, particularly in the underdeveloped western part of the country.
• Obviously, building infrastructure involves huge investments. It is a drag on public finance and at the same time, it absorbs private resources that then are not available for other purposes. In the case of China, there are serious complaints that economic growth is too dependent on capital expenditure and that the Chinese do not consume enough. In addition, there is the fear that overcapacities are being created and that capital is wasted on obsolete projects. It is certainly not necessary that ev­ery provincial town in the country builds an airport that has enough capacity to serve as an international hub.
• In India’s case, we are still far from this situation. Recently, we came across a detailed report published by the National Council of Applied Economic Research (NCAER) in Delhi. The study, which had been sponsored by the global cement company Holcim, provides fascinating insights into current developments in India’s infrastructure. The report presents a number of case studies and draws important conclusions about what can ensure the successful completion of infrastructure projects.
• Today, India is the fourth largest economy in the world. Growth in the recent past has been impressive and, although, there might be some temporary setbacks, the long-term trend looks very favourable. However, grave deficiencies in national infrastructure are a key impediment to higher economic growth. In fact, there are estimates that the lack of proper infrastructure reduces India’s GDP growth by 1 per cent or even 2 per cent every year. This, obviously, is too high a price to pay for an economy that aspires to be amongst the world’s best.
• In a critical assessment, the NCAER report notes that “the fast growth of the Indian economy in recent years has placed increased stress on physical infrastructure. Sectors such as electricity, railways, roads, po­rts, airports, irrigation, ur­ban and rural water supply and sanitation continue to experience the pressure of rising demand for services even as they suffer from a substantial initial deficit”.
• NCAER expects the public sector to continue to play an important role in building a modern transportation infrastructure. However, the resources needed are much larger than what the public sector can provide and public investment will, therefore, have to be supplemented by private sector investments, through public-private partnership (PPP).
• The study, covering 16 projects in five major infrastructure sectors, has looked at all stages in the process of project execution, including planning and contracting. It also examined post-execution sustainability issues. Eleven of the projects are through the PPP route. These are still a relatively new phenomenon in India compared with many other countries. PPPs are compensating for the budgetary and borrowing constraints of governments. Finally, they allow for gains in efficiency, particularly in the use of resources and provide access to better project designs and modern technology.
• The recent NCAER study has been carried out with the objective of assessing the problems and constraints in the successful implementation of infrastructure projects in In­dia. It has examined several successful projects that have not experienced any time and cost overruns, the two most common defaults. Overall, these projects were successful because they had been well conceived and their implementation had been properly planned. Successful projects often involve higher costs. This makes it all the more important that the selection process be fully transparent and adequate competition is guaranteed. International tie-ups can be beneficial, too.
• Infrastructure development benefits have a very long time horizon to be seen. If projects are well executed and sustainable, they will serve many generations to come. They add to the national capital stock, make the country richer and, thereby, increase its prestige both in the eyes of its own citizens and of the world at large. When foreign visitors see a functioning and efficient infrastructure, they feel confident and they may return as investors. In this way, infrastructure development creates a win-win situation. The quality of life of citizens improves and at the same time, the wealth of the nation increases.

Source