[Yojana January Summary] Infrastructure: History & Challenges – Explained, pointwise

Introduction

According to the Government, India is expected to become a USD5 trillion economy by 2024 and aspires to become a USD10 trillion economy by 2030. Between 2022 and 2030, approximately 700 to 900 million square metres of urban space will be constructed every year. However, Infrastructure development remains a key constraint in India’s economic development.

Industrial growth is contingent upon the development of other infrastructural facilities such as transportation, energy, electricity, and communications. This highlights the attention required on infrastructure development in India.

Why does India need to invest in infrastructure development?

Creation of Jobs: Infrastructure development such as construction of roads and railways, real estate etc. is labour-intensive. It leads to an increase in employment opportunities in formal and informal sectors and thus helps in fuelling domestic demand. 

Improving Farmers’ Income: Investment in infrastructure would play a critical role in ensuring the doubling of farmers’ income through a focus on increased transportation, irrigation, warehousing, storage, processing and marketing infrastructure. 

Health and Well-being: Infrastructure development of superior healthcare facilities, electronic health records and better-equipped health infrastructure at primary levels (Telemedicine) will help improve the health outcomes, reduce poverty and increase productivity of the labour. 

Logistic Costs: Building world-class roads, railways, ports, inland waterways, will cut down logistic costs and improve competitiveness and promote exports. This would bring more revenues to the government and help promote socio-economic development. 

About India’s infrastructure development post Independence

The Industrial Policy Resolution (IPR) of 1948 proposed a mixed economy. Earlier, the ‘Bombay Plan’, proposed by eight influential industrialists envisaged a substantial public sector with State interventions and regulations in order to protect indigenous industries.

India set up the Planning Commission in 1950 to oversee the entire range of planning; including resource allocation, implementation, and appraisal of five-year plans. These Plans were centralised economic and social growth programmes modelled after those prevalent in the USSR.

First five-year plan 1951-56: This plan was based on the Harrod–Domar model. It focused on agriculture and irrigation to boost farm output. Important infrastructural developments included a) Plan to create Five Indian Institutes of Technology (IITs) as major technical institutions. b) The University Grants Commission (UGC) was set up to take care of funding and take measures to strengthen higher education, c) Contracts were signed to start five steel plants, which came into existence in the middle of the Second Five-Year Plan.

Second Five-Year Plan: The plan focused on the development of the public sector and ‘rapid Industrialisation’. The Plan followed the Mahalanobis model. Power and steel were identified as the key bases for planning.

Along with this plan and Industrial Policy Resolution 1956 (long considered the economic constitution of India), there was a determined thrust towards substitution of basic and capital good industries. The developments included, a) Hydroelectric power projects and five steel plants at Bhilai, Durgapur, and Rourkela were established with the help of the Soviet Union, Britain (the UK), and West Germany respectively. b) Coal production was increased. c) More railway lines were added in North East. d) The Tata Institute of Fundamental Research (TIFR) and the Atomic Energy Commission of India were established as research institutes.

The nationalisation of 14 public sector banks was a major event during the Fourth Plan (1969- 74) which had a huge impact on the Indian economy & infrastructure.

The Indian National Highway System was introduced, and many roads were widened to accommodate the increasing traffic during the Fifth Plan (1974-78)

Recent infrastructure developments in India

Urbanisation and related infrastructure

Urbanisation in India has become an important and irreversible process, and it is an important determinant of national economic growth and poverty reduction. In order to promote affordable housing, the Government has 1) Granted infrastructure status to affordable housing, 2) Passed the Real Estate (Regulation and Development) Act, 2016(RERA), and Benami Transactions (Prohibition) Amendment Act 2016, 3) Established Real Estate Investment Trusts (REITs), 4) launched Pradhan Mantri Awas Yojana (PMAY) and Affordable Rental Housing Complexes (ARHCs) (for urban migrants/poor), 5) Apart from that the government also provided higher tax breaks on home loans, land-related reforms, optimising development control rules, rationalising of the stamp duty and registration charges, etc.

Mass rapid transit and related infrastructure

The concept of mass rapid transit for New Delhi first emerged from a traffic and travel characteristics study which was carried out in the city in 1969. While extensive studies were in progress, the city expanded significantly, resulting in a two-fold rise in population, and a five-fold rise in the number of vehicles between 1981 and 1998.

To rectify the situation, the Government of India and the Government of Delhi jointly set up a company called the Delhi Metro Rail Corporation (DMRC) with E Sreedharan as the Managing Director. Later, the Delhi Metro became the second underground rapid transit system in India, after the Kolkata Metro.

Other infrastructure projects

Some of the mega initiatives include the Sagarmala and Bharatmala Pariyojana projects, the establishment of the National Investment and Infrastructure Fund, revisiting Public-Private Partnership (PPP) models on the lines of the Kelkar Committee recommendations, etc.

Other initiatives include Delhi-Mumbai Industrial Corridor (DMIC), the Bengaluru-Mumbai Economic Corridor (BMEC), the Chennai-Bengaluru Industrial Corridor (CBIC), and others.

PM Gati Shakti

It is the National Master Plan for Multi-modal Connectivity. The Gati Shakti scheme will subsume the Rs 110 lakh crore National Infrastructure Pipeline (NIP) that was launched in 2019.

What are the challenges in infrastructure development?

First, infrastructure provisioning requires massive investments, often over a prolonged duration of time. Further, infrastructure projects coupled with procedural delays and returns are expected after a long period of investment.

Second, given the high fiscal requirements, particularly of large-scale infrastructure development projects, public investments alone may not be sufficient to fund infrastructure development in India.

Third, Projects have been delayed: Land acquisition is often the biggest impediment in the infrastructure development of India. There are other issues such as litigation issues, alienation of local communities and the violation of environmental norms, etc.

The latest report of the Infrastructure and Project Monitoring Division showed that delays in projects costing over Rs 150 crores had resulted in a cost overrun of more than Rs 4 trillion.

Fourth, Low Credit Off-take: According to the RBI’s paper, the growth rate in credit off-take has steeply declined to 5.8% in November 2020, as against 14.2% in 2013. This will reduce private investment in infrastructure projects. At present, there are concerns about the declining credit off-take trends from banks as they don’t want to get into another Non-Performing Asset (NPA) crisis in future.

What should be done to improve infrastructure development?

1. Encourage private participation in infrastructure development through various forms of Public-Private Partnerships (PPPs), especially in real estate/housing sector. 2. The quality of infrastructure development in India needs urgent attention if the country intends to realise its economy and growth potential, 3. Address certain key issues: For the proper implementation of infrastructure projects, India needs to address structural and macroeconomic stability concerns, emanating from high public expenditure, 4. Solve the credit off-take challenge: The Economic Survey for 2020-21 mentioned that India needs ₹4.5-lakh crore investments per year from the private sector to boost NIP sectors. So, the government has to address the issues associated with low credit off-take for successful private investments.

Proper implementation of infrastructure projects will help India to realise its dream of becoming the “business capital” of the world. But, to achieve that, all the challenges in infrastructure development must be addressed on a priority.