Infrastructure Development in India: Civil Services Mentor Magazine – January 2014


  • Introduction (Free Available)

  • 12th Five Year Plan (Free Available)

  • Public-Private Partnerships in India (Only
    for Online Coaching Members and

  • Why do some PPPs fail? (Only
    for Online Coaching Members and

  • Approach to PPP’ s in India (Only
    for Online Coaching Members and


India is the fourth largest economy in the world. However,
one factor which is a drag on its development is the lack of world class
infrastructure. In fact, estimates suggest that the lack of proper
infrastructure pulls down India’s GDP growth by 1-2 percent every year. Physical
infrastructure has a direct impact on the growth and overall development of an
economy. But, the fast growth of the Indian economy in recent years has placed
increasing stress on physical infrastructure, such as electricity, railways,
roads, ports, airports, irrigation, urban and rural water supply, and
sanitation, all of which already suffer from a substantial deficit. The goals of
inclusive growth and a 9 percent growth in GDP can be achieved only if this
infrastructure deficit is overcome. Infrastructure development will help in
creating a better investment climate in India. To develop infrastructure in the
country, the government is expected to revisit issues of budgetary allocation,
tariff policy, fiscal incentives, private sector participation, and
publicprivate partnerships (PPPs) with resolve.

There are many issues that need to be addressed in different
infrastructural fields. To begin with, the gap between electricity production
and demand is affecting both manufacturing and overall growth. Then though road
transport is the backbone of the Indian transport infrastructure, it is
inadequate in terms of quality, quantity, and connectivity. Also in the overall
transport sector, civil aviation and ports desperately need modernization. It is
expected that the public sector will continue to play an important role in
building transport infrastructure. However, the resources needed are much larger
than what the public sector can provide.

12th Five Year Plan

Inadequate infrastructure was recognized in the Eleventh Plan
as a major constraint for rapid growth. The Plan had, therefore, emphasized on
the need for massive expansion on investment in infrastructure based on a
combination of public and private investment, the latter through various forms
of PPPs. Substantial progress has been made in this respect. The total
investment in infrastructure, which includes roads, railways, ports, electricity
and telecommunication, oil gas pipelines, and irrigation, is estimated to have
increased from 5.7 per cent of GDP in the base year of the Eleventh Plan to
around 8 per cent in the last year of the Plan. The pace of investment has been
particularly buoyant in some sectors, notably telecommunication and oil and gas
pipelines, while falling short of targets in electricity, railways, roads, and
ports. Efforts to attract private investment in infrastructure through the PPP
route have met with considerable success, not only at the level of the central
government, but also at the level of individual states. A large number of PPPs
have taken off, and many of them are currently operational at both the centre
and in the states.

The Twelfth Plan intends to continue its thrust on
accelerating the pace of investment in infrastructure as this is critical for
sustaining and accelerating growth. The Planning Commission in its Twelfth Five
Year Plan Document (2012-17) expects investments in infrastructure projects to
be worth of US$ 1 Trillion over the five years of the plan. The total investment
as a percentage of GDP is also expected to be in the range of 7-9% (see figure
1). Public investments in infrastructure have been the dominant form of
infrastructure financing in India, but this is expected to change and the
private sector will be expected to invest more in infrastructure in the
coming years. It would be necessary to review the factors which may be
constraining private investment, and steps may be needed to rectify them. PPPs,
with appropriate regulation and concern for equity, need to be
encouraged in social sectors, such as health and education. Several state
governments are already taking steps in this direction.

However, public investment in infrastructure is still
expected to bear a large part of the infrastructure needs in backward and remote
areas for improving connectivity and expanding much-needed public services.
Since resource constraints will continue to limit public investment in
infrastructure in other areas, PPP-based development needs to be encouraged
wherever feasible. The above chart shows the percentage component of public and
private investment in infrastructure in the 11th Five-Year Plan. As per the 12th
Plan Document, the Planning Commission targets to achieve 50% private and PPP
funding in total infrastructure investments, compared to a little more than 30%
in the 11th Plan. The chart 3 below gives us an idea of what portion of private
investment is in the form of PPP investments. It is evident that there is a
greater emphasis to initiate PPP projects in the 12th Plan. In terms of number
of projects, roads and highways are emerging as favoured destinations for PPP,
while telecom and electricity lead in terms of private investments. Currently
there are 758 projects in the pipeline with more than 53% in the roads sector,
followed by urban development with 20% of the projects.

See chart 4 The Indian power sector has attracted much
private investment in the past years. With 56 projects for a total consideration
of US$ 12.6 billion, the sector accounts for 18% of the total value of PPP
projects across sectors, though only 7% of the total number of PPP projects.
India’s total generating capacity is around 173,626.4 megawatts (MW), of which
the private sector accounts for the lowest (21.2%). See figure 5 and 5A. India
is expected to make great investments in the power sector due to rapid
urbanization, rural electrification and industries across the country. Under the
12th Plan, the private sector is likely to account for a major share of the
additional capacity (55.6%). PPP is likely to be the preferred route for such

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