Suffering from shortfall in infrastructure, India faces obstacles to development

Cecilia Tortajada and Asit K. Biswas

SHANGHAI DAILY | November 4, 2014

During the next four decades, urbanization in the country will increase, dietary patterns will change, requirements for all types of resources will accelerate, and agricultural productivity will struggle to keep up with the food requirements of an increasingly affluent population. People’s expectations for continually better standards and quality of life will increase steadily.

All these have to be met with the uncertainties imposed by many other complex and uncertain issues.

They include fluctuations in economic growth rates, magnitude and extent of climate change, social and political upheavals inside and outside the country, extent of global free trade and their implications for the country, and steady advances in science and technology. Challenges for the country are truly formidable, but so are the opportunities.

There is no question that to meet all these challenges successfully, India will not only need significantly more infrastructure but will also need better planning and management.

If the necessary infrastructure requirements cannot be met in a timely manner, the country will steadily fall behind other Asian countries like China, Malaysia, Indonesia, Sri Lanka and Thailand, which have developed and are likely to continue to develop their infrastructure at a faster rate than India.

Infrastructure deficit

If we compare the two Asian giants, in 1980 India had more roads, power and telecommunication facilities than China. A decade later, not only had China overtaken India but its infrastructure advantage has steadily increased and the difference is now overwhelming.

The infrastructure deficit is one of the main reasons India has been unable to develop labor-intensive manufacturing industries, which could have provided employment opportunities for its millions of unskilled and semi-skilled workers as China has done.

In 1980, China’s global market share was a little over twice India’s. Some 25 years later, this gap has increased to more than eight times. In addition, the quality of China’s exported products now far exceeds India’s.

Let us review the present situation as to how India fares in infrastructure in terms of global competitiveness. According to the latest Global Competitiveness Report, 2013-2014 of the World Economic Forum, in terms of quality of overall infrastructure of 148 countries, India ranked 85th. Many Asian developing countries had much higher rankings: Malaysia (29), China (48), Indonesia (61), and Sri Lanka (73).

Formidable challenges

In specific areas of infrastructure, India’s ranking was generally similar. For the quality of its roads, its rank was 84, quality of air transport infrastructure (61), quality of electricity supply (111), active fixed telephone lines (118) and mobile telephone subscriptions (123). Only in quality of railroads infrastructure did it fare better, at 19. Even in railroads, its competitiveness was below Malaysia (18) but above China (20).

Thus, if India is to successfully compete with other emerging Asian developing countries, its infrastructure and management have to improve very substantially during the next decades.

India faces formidable development challenges. Between 2010 and 2050, some 497 million people will move to urban areas. In contrast, China will add about 347 million.

In all areas of infrastructure except railroads, India fares much worse than China. If it is to catch up with China by 2050, it will not only have to close the infrastructure gap but also provide for 42 percent more urban people expected to move into urban areas compared to China. The competitive position will not get much easier because China is not going to sit idle.

Let us compare the status of road infrastructure in China and India. In 2009, the World Bank reported that India had only 6,000 kilometers of four-lane highways. In comparison, China had built 35,000 kilometers four- to six-lane highways just during the preceding 10 years. In just the past five years, China has constructed over 9,200 km of high-speed train tracks and over 630,000 km of highways.

In terms of electricity generation, a significant part of India suffers from erratic supply and the country has a shortfall of 15 to 20 percent to meet peak demand. This is in spite of 350 to 400 million Indians having no access to electricity at all.

In contrast, China has ensured that over 99 percent of its population has access to electricity. In recent years, China each month has been adding nearly the total generating capacity of Bangladesh, a country with about 11 percent of China’s population.

China comes out well above India in terms of all types of infrastructure development. Nevertheless, China remains well behind the United States.

For example, its railway network is now shorter than that of the United States during the 1880s. Road systems in major cities are inadequate to handle all the new car traffic.

As any recent visitor to Beijing or Shanghai will testify, the main roads appear to be permanently congested.

The infrastructure deficit in India has now become very significant and has become a serious constraint to development. In April 2013, the Indian finance minister, P. Chidambaram, noted that India had a US$1 trillion infrastructure deficit over the next five years.

The country continues to have a high fiscal deficit, the annual inflation rate has exceeded 8.2 percent since 2008, and it has high public debt, poor infrastructure, rupee depreciation and high public subsidies in many sectors, especially food and energy.

All these factors will make it very difficult to meet the budgeted fiscal deficit target of 4.1 percent this year, and still provide adequate funding for new infrastructure projects. S&P now has BBB- sovereign debt rating for the country, but has recently raised the outlook to stable from negative. The rating of BBB- is still only one grade above junk status.

Build roads first

During the past three decades, China has consistently exceeded India each year in terms of infrastructure development. For example, from 1992-2011, China spent nearly 8.5 percent of its GDP on infrastructure, compared with India spending less than one-quarter of that percentage.

India’s poor infrastructure, inappropriate policy frameworks and ideological biases have hindered inflows of foreign direct investment over the past several decades, part of which could have financed infrastructure deficits and improved supply chains.

In addition, much of what has been invested has not been done properly because of poor planning and execution, absence of a culture of preventive maintenance and endemic corruption.

According to an old Chinese proverb, if you want to be rich, you must first build roads. In an Indian context in the 21st century, an appropriate saying could be: “If a country wants to be rich, it must first build infrastructure.”

Cecilia Tortajada is senior research fellow and Asit K. Biswas is distinguished visiting professor at Lee Kuan Yew School of Public Policy, Singapore. Both are co-founders of the Third World Center for Water Management in Mexico.