Industrial growth in the country has been a matter of concern in recent months as it has been stagnant and even declining, with the Index of Industrial Production (IIP) growth rate down to 0.7% during the April-December 2012 period. One of the most important factors responsible for this is the state of our transport infrastructure and services. The proposals on infrastructure by the finance minister on 28 February and those made earlier on 26 February by the railway minister are, therefore, critical.
The 12th Plan envisages an investment of Rs.1 trillion in infrastructure during the Plan period and 47% of this is expected to come from the private sector. Lack of adequate debt financing has been one of the reasons behind the private sector not being able to participate in infrastructure construction to the extent required. The finance minister has proposed a number of instruments to help the private sector to mobilize investments at the required level including a fresh dose of tax-free bonds up to Rs.50,000 crore in 2013-14. These instruments should go a long way in inducing fuller participation of the private sector.
Cross-subsidization of passenger fares by freight rates has been the past practice in the Indian Railways, to the detriment of the interests of the manufacturing sector. This practice seems to be on the way out. A substantial revision of passenger fares has already been announced from 22 January. The railway minister has also spoken of a modest annual increase of 5-6% in the fares in future to generate additional resources internally.
He has introduced a fuel adjustment component in the tariffs which would go up and down with fuel cost. These proposals would help to improve the operating cost of the Indian Railways, which had slumped to 95.3% in 2009-10 after reaching an impressive level of 75.9% in 2007-08. It is also a good augury that the minister has reported progress in the proposal for setting up an independent rail tariff authority.
The service provided by the Indian Railways in several corridors has been suffering because of saturated traffic. In order to improve the service for both freight and passenger traffic, the eastern and western dedicated freight corridors were conceptualized in 2005, but progress in implementation has been very slow. It has, therefore, been heartening to hear that the first major civil construction contract on the 343 km Kanpur-Khurja section of the eastern corridor has already been awarded and construction contracts to cover up to 1,500km on the two corridors are expected to be finalized by the end of 2013-14.
The finance minister has announced that two major ports would be established in West Bengal and Andhra Pradesh and a new harbour built in Tamil Nadu through public-private partnership (PPP), resulting in a capacity addition of 142 million tonnes. There is good news also about other projects taken up in the existing 12 major ports. During 2011-12, progress had been blocked mainly on account of security clearance and only three contracts were awarded out of 23. During the year 2012-13, so far 17 contracts have been awarded out of 42.
Progress in the construction of roads has slipped during 2012-13 and the achievement fell far short of the target of the award of contracts to the tune of 8,800km set last year.
The PPP projects in the sector seem to have run into trouble due to financial stress along with enhanced construction risk and contract management issues. To redress the situation it is proposed to constitute a regulatory authority for the road sector. In the meantime, a modest target of 3,000km for award of contracts has been set for the first six months of 2013-14.
Although the national highways have improved vastly due to construction in the 10th and 11th Plan periods, as long as we do not have access-controlled expressways it cannot be said that we have developed world class roadways. The Yamuna Expressway constructed in Uttar Pradesh by the private sector should show us the way.
Both Metro and non-Metro airports have been vastly improved over the past nine years of so. The government now needs to pay attention to the health of the airline industry, which seems to be under great stress. One of the reasons for this is the cost of aviation turbine fuel, which accounts for almost 50% of the operating cost. Pricing of fuel by the oil marketing companies and its taxation by the state governments have been bleeding the airlines. Since the introduction of the goods and services tax will not bring any relief as petroleum products are likely to be exempted from it, the central government should move in a timely manner to accord it the status of “declared good” that carries lower and uniform tax rate.
Anwarul Hoda is a Professor in Indian Council for Research on International Economic Relations