Active Stocks
Tue Mar 19 2024 14:51:11
  1. Tata Consultancy Services share price
  2. 3,984.95 -3.86%
  1. Tata Steel share price
  2. 149.50 -0.07%
  1. Bharti Airtel share price
  2. 1,231.40 0.52%
  1. Power Grid Corporation Of India share price
  2. 260.20 -1.81%
  1. ITC share price
  2. 409.95 -1.78%
Business News/ Opinion / World Bank on infrastructure gap
BackBack

World Bank on infrastructure gap

The difficulty lies, not in getting funds, but in reforms to create an environment that will ensure projects can be implemented speedily and are profitable

While 75% of India’s population may have an electricity connection, the question is for how many hours is electricity available. Photo: Pradeep Gaur/MintPremium
While 75% of India’s population may have an electricity connection, the question is for how many hours is electricity available. Photo: Pradeep Gaur/Mint

At a time when the government has been trying to attract foreign investment towards building sorely-needed infrastructure, the World Bank has published two papers on infrastructure in South Asia. One of them, titled The Infrastructure Gap in South Asia, by Luis Andres, Dan Biller and Matias Herrera Dappe, looks at the amount of investment needed in infrastructure in the region and how governments should prioritize them. The other paper, by the same authors, looks at the inequality in access to infrastructure in the region.

The chart looks at how infrastructure in India compares with Pakistan and Sri Lanka, and also with Brazil and China—two of the BRICS countries. Rather surprisingly, India scores high on its road network and in the extent of paved roads. What is missing from the picture, of course, is the quality of the roads. The same goes for access to electricity. While 75% of India’s population may have an electricity connection, the question is for how many hours is electricity available. India’s dismal figures for access to improved sanitation—we lag behind most countries in the region—is the reason the government has taken up the construction of toilets on a priority basis. How much is needed for financing the region’s infrastructure needs? The researchers put the number required for India between 2011 and 2020 at a minimum of $1.1 trillion and a maximum of $1.7 trillion. That’s $170 billion per year over 10 years at the higher end of the estimates, or around 9% of the gross domestic product (GDP).

The World Bank researchers say that, given that the resources can’t be raised by taxation alone, the private sector must be involved in the projects, especially through public-private partnerships. One of the big problems is, as the paper points out, “...the assumption that input costs can be recovered from user fees, or some form of beneficiary taxation, does not hold for many cities in the developing world as the payment capacities of consumers are severely constrained."

It’s rather obvious that the poor have less access than the rich, so it’s an eye-opener when the researchers point out that once access is achieved, Sri Lanka’s rich and poor have roughly equal shares, especially in the provision of water, sanitation, telephones and electricity, with cooking gas being the odd one out. In India, the authors unsurprisingly conclude that “India’s infrastructure service access is strongly regressive".

There is considerable variation between the states. For instance, Maharashtra is one of the richest states, yet it has lower access to water than Bihar and also ranks low in access to improved sanitation and electricity. The study finds that location and the level of education of the household head are the most important considerations determining inequality of opportunity in access to infrastructure at the state level. It’s very likely that the level of education is linked to the level of poverty. The study also says: “An interesting example on access to improved sanitation is found in the north of India, where some of the worst performing districts in the country are in-between some of the best performing districts." Finance may not really be the big constraint for the provision of infrastructure in India. Of greater importance at the moment is the fact that projects are stuck at various stages of completion for lack of coal or gas. The financial restructuring of the distribution companies, or discoms, has come a cropper. Road projects have stalled, with companies that had earlier taken on build, operate, transfer (BOT) being badly singed. The resumption of iron-ore mining is proceeding at a snail’s pace. Firms executing projects face interminable delays in land acquisition. Cargo agents block work at ports. The mess in telecom is yet to be sorted out. These issues need to be tackled without further delay.

On the other hand, the world is starved of good investment projects. Joseph Stiglitz long ago pointed out that Ben Bernanke’s global savings glut can also be seen as a dearth of investments.

With China moving towards consumption growth, India has the opportunity to take its place as the primary market where global surplus capital can be absorbed. If the Alibaba initial public offer can raise $21.8 billion, there’s more than enough financing available for the right projects. The difficulty lies, not in getting funds, but in reforms to create an environment that will ensure projects can be implemented speedily and are profitable. Once we get that fixed, the money will come.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments and feedback are welcome at capitalaccount@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 21 Sep 2014, 10:18 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App