economic & strategic outlook - india infrastructure - require huge investment
Global Investment House – Economic & Strategic Outlook- India – Infrastructure - Improvements in infrastructure facilities will be critical to sustain and accelerate the current economic growth. It is noteworthy that in the recent years improvements have taken place in infrastructure facilities in areas such as telecommunications, roads, ports and railways. These developments are having a positive impact on the productivity and competitiveness of Indian economy. At the same time, infrastructural constraints in most critical areas such as power and urban infrastructure continue to impinge on the competitiveness of manufacturing activity. Apart from higher levels of investment, issues of governance and management including policies relating to appropriate pricing and user charges would need to be addressed to achieve satisfactory results.
The government projects a total fund flow of US$456bn in 11th five year plan (2007-12). The resources will be mobilised from public sector funding and private investment. Of the total projected investment, it is estimated that power could get 28%, roads 19.7%, railways 14.5% and telecom about 12.3%. Power sector can see investment of Rs5,257.2bn in the 11th plan. Public spending would continue to dominate this investment with private sector expected to contribute Rs200bn with a projected growth rate of 15%. Road sector can see investment of Rs3,686.5bn in the same period with private sector playing important role in the sector. It is expected that overall spending on national highways would grow by 5% per annum for next five years. Investment in rural roads is also projected to grow at 8% per annum.
Government has identified growth in agriculture sector as the key to realizing 9% growth rate during 11th plan. For this to happen, the irrigation network has to be improved substantially. It is projected that investment of Rs1,831.4bn would come to the sector for creating the target 14.5mn hectares of irrigation potential. In the water supply and sanitation sectors, Rs1,063.5bn worth of investment is expected to come. This would mean that central and state plan spending would grow at 10% and 5% respectively.
Index of six core infrastructure industries comprising of crude petroleum, petroleum refinery products, coal, electricity, cement and finished steel witnessed a robust increase of 10% in March 2007. A year ago, the index had increased by 7%. Except for cement, all the remaining five sectors witnessed higher growth in production in March 2007 as compared to the previous year. Electricity generation recorded a healthy increase of 8% in March 2007 as compared to the modest rise of 3.4% a year ago. Finished steel production witnessed the fastest increase of 15% in addition to the 10.9% increase a year back. Crude petroleum production recorded a turnaround, growing by 3.2% in March 2007. A year ago, production had declined by 2.5% in March 2006. Production of petroleum refinery products witnessed an impressive increase of 13.4%. Growth in cement production decelerated sharply to 5.5% in March 2007 as compared to the strong increase of 17% a year ago.
During 2006-07, index of six core infrastructure industries recorded a satisfactory rise of 8.6% as compared to 6.2% increase in the previous year. Electricity generation, with the largest weight in core infrastructure industries, grew by 7.3% during 2006-07. Growth in crude petroleum production grew by 5.6% during 2006-07 as compared to a decline of 5.3% during the previous year. Petroleum refinery production also witnessed a robust increase of 13.4% during 2006-07. Production of cement witnessed a lower increase of 9.1% during 2006-07 after expanding by 12.1% in the previous year. Growth in coal production also slowed to 5.9% from 6.6% during 2005-06.
Improvements in infrastructure assume critical importance for maintaining and improving India’s competitiveness as also encouraging investment in export production and sustaining the pace of export growth in the longer term. Given the kind of investment requirement for the infrastructure development with rapid progress with private participation, sector is expected to grow at good pace for the next few years.
Coal production was affected severely in the first half of 2005-06 owing to disruption in mining activities in various coal fields caused by heavy downpour in some regions during the monsoon. However, mining activities improved in the second half of the fiscal which facilitated a recovery in coal production. The finished steel sector witnessed some deceleration during the year, which could be partly attributed to higher imports and slowdown in exports. Growth in the production of petroleum refinery products recorded a slowdown due to unscheduled shutdown of certain refineries and some moderation in off-take of petroleum products. The subdued growth in electricity sector is attributed to inadequate availability of coal and gas. Reflecting these trends, production of many infrastructure industries fell short of their targets for 2005-06. The fertiliser sector also remained below target due to lackluster performance both by public and private sector plants on the back of shortage of raw materials and natural gas in a few plants and equipment problems. Natural gas production exceeded the target, even as electricity generation was held down by inadequate supply of gas.
