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“LIMITATIONS OF INFRASTRUCTURE DEVELOPMENT IN INDIA”

By Ravi K Mehrotra CBEExecutive Chairman

Foresight Group, London

“India Calling 2009”

India-Europe Business Partnership Summit

1st October 2009

European Parliament, Brussels, Belgium

“LIMITATIONS OF INFRASTRUCTURE DEVELOPMENT IN INDIA”

It has been well said by the World Bank experts that a country’s progress from underdeveloped to a developed nation depends upon growth of its infrastructure.

3I Networks of India put out a report in 2004 about India’s infrastructure that says “even relative to income, our failure in water, roads, sanitation, schooling and electricity is woeful”.

It is a miracle and credit to India’s youth and its industrialists that during the last 5 years we managed a 7% annual growth. This has brought the country to a stage where it has become imperative for both the Government and Industry that further growth is difficult unless the nation accelerate the development of infrastructure.

If we do not do this, India will remain a country which houses the world’s maximum number of poor people below poverty line (between 250 – 300m), no matter how much we shout that growth has to be all inclusive, it will have no effect on the acceleration of growth and disparities will increase between the rich and the poor.

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“LIMITATIONS OF INFRASTRUCTURE DEVELOPMENT IN INDIA” Cont’d…

Whereas it is well recorded history that in the USA, President Eisenhower in the early 1950’s first built the infrastructure i.e. ports, railways, roads, highways, airports and communications and we all know that growth followed. Recently China’s success clearly shows that 50 years later, the premise is still valid. Even our own experience of making India’s first Quadrilateral road network shows India’s GDP growth increased by about 1.5% additionally.

Therefore let’s see what India has planned for its infrastructure growth in the next five years and what it requires:-

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“TRADITIONAL MEANS OF DEVELOPMENT”10 do’s for a country to progress from underdeveloped to a developed

nation:- • You should be able to travel quickly and safely all over the country (or most of it)• You should be able to communicate quickly, efficiently and cheaply• You should be able to drink water safely and breathe fresh air throughout the

country• You should be able to educate and train youths in all parts of the country so that

they innovate what they do• You should be able to mobilise quickly skilled labour force in any part of the country• You should be able to do efficient utilisation of resources to reduce the capital cost

of production, especially main resources such as water, raw material, electrical power and petroleum products

• You should be able to move money efficiently and quickly where it is required• You should be able to move goods efficiently and cheaply within and outside the

country• You should be able to store efficiently, cheaply and without damage to

commodities, raw materials and finished products• Lastly, there needs to be an abundant consumer market for what you produce

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“TRADITIONAL MEANS OF DEVELOPMENT”Cont’d…

We are already good in at least four of the above 10 do’s:-

Communication; Education to innovate; Able to mobilise Skilled Labour all over the country; And have an Abundant Consumer Market.

We need to tick at least 7 out of the 10 do’s to make a difference

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“LIMITATIONS OF INDIAN DEMOCRACY AS IT IS TODAY”

Our majority vote bank reside in villages and therefore any growth has to be inclusive. We cannot follow the same path as some countries did i.e. Japan, South Korea and now China, they developed coastal areas first to create a critical mass for the development and then dispersed it in the whole country. India has bad experiences of its 1st five year plan where growth was initiated in the North and South only, and discontent developed in other parts of the country.

Our industrial houses are not able to follow examples of Japan’s Keiretsu & Zaibatsu, South Korea’s Chaebols and Russia’s Oligarch type of focus on development and hegemony of industrialisation. India is too diverse for this kind of growth.

Our ingrained “Raja and Babu” culture since the Ashok Gupta dynasty 2000 years ago has made us expect all ‘top to bottom’ approach in growth so India’s growth largely depends on the political climate at any given time (today’s equivalent of Raja are our politicians).

Our cultural difficulty in which ‘bankruptcy’ has a very negative connotation which develops a fear of failure culture in oneself.

Our country, due to the above 4th point has a big vacuum of ‘venture capitalist’ institutions hence, growth of entrepreneurial class is very limited at present.

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“CHINA’S DEVELOPMENT & ITS COMPARISON WITH INDIA”

China reminds me a little of Germany in the 20th century and in the Industrial revolution: very organised, very focussed and determined to leapfrog everybody. Chinese engineers are very good at reverse engineering.

India reminds me of Italy in the early 19th century: with its creativity, individualism, talent, spirituality, respect of its cultural heritage and systemic chaos. It is not by accident that India produces herds of very talented software developers as it takes a fairly unstructured thinking to excel in this field. Dozens of bio-tech start ups, founded by Indians leveraging the most diverse genomic pool in the world. I believe that beyond software, India will become a world power in biotech.

India is a multi-party democracy. China is a single party controlled state. India’s population is slightly lower than China’s at present but growing faster . By 2025 India will overtake China’s population. Migration of Indians to other countries is six times larger than that of China. China has three times the land area and twice the coast line of India but the total arable land is the same for both countries. India has the fourth largest coal reserve in the world, while China has the world’s largest hydropower potential.

At the end of the day , China and India will probably follow their DNA and develop themselves very differently. Two great countries, two great histories, two great cultures. The remaining question will be how the US and Europe maintain their privileged economic positions in this race?

The following few slides give you the statistical differences in these two great economies

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“GDP Growth 2000 to 2050”

Source: Goldmann Sachs: The Path to 2050

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

[2003 bn US Dollars]

GermanyBrazil

JapanRussia

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“FDI ATTRACTIVENESS CHINA Vs INDIA”

China & India: Governance Indicators* China & India: Obstacles in Doing Business Indicators

* The 6 Governance Indicators are measured in units ranging from about -2.5 to 2.5, with higher values corresponding to better Governance outcomes. Data has been rescaled to 0-5 for ease of understanding. * Higher Score = More Rigid Labour Laws

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“INDIA & CHINA GDP”

China & India: Real GDP growth (in percentages) China & India: Nominal GDP (in US$ billion)

Last 30 years GDP growth Last 30 years growth in nominal GDP

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“REVENUE & EXPENDITURE CHINA & INDIA”

China: Central Government Revenues & Expenditures as a % of GDP India: Central Government Revenues & Expenditures as a % of GDP

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“SECTOR-WISE BREAK-UP OF ECONOMIESCHINA & INDIA”

0%

50%

100%

SectorwiseBreak up ofChina GDP

SectorwiseBreak up of

ChinaPopulation

SectorwiseBreak up ofIndia GDP

SectorwiseBreak up of

IndiaPopulation

ServicesIndustryAgriculture

India’s 54% of population is engaged in Agriculture but only accounts for 17% of GDP

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“POTENTIAL GROWTH IN INDIA’S OIL DEMAND”

For India to become a developed nation its consumption has to reach at least 1.0 tonne per person per annum. This means 22 million barrels of oil per day. Some alternative energy resources may reduce this consumption by 10%.

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“GROSS DOMESTIC SAVINGS CHINA & INDIA”

• China & India: Gross Domestic Saving as a % of GDP

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“INFRASTRUCTURE * INVESTMENTS”

* Transport, Communication & Power

Source: China Statistical Yearbook, RBI, Morgan Stanley Research -15-

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COMPARISON CO2 EMISSIONS

PER TONNE-KILOMETRE TRANSPORTATION

= 5gms CO2 per tonne/kilometre

Source: British Chamber of Shipping

SEA ROAD AIR

x1

x10

x108

RAIL

x5

“WHAT IS INDIA’S PRIORITY IN INFRASTRUCTURE?” It is an established fact that for a nation to develop fast it has to invest more than

20% of its GDP on its infrastructures i.e. roads, sea ports, airports, railways, power, communication, water management and sewage disposal systems.

India at present invests 5.5% of GDP on this and it has planned to increase this in coming years to 9% of GDP. Government believes it will give the country a good chance to raise its growth from present 6% to 9% of GDP. It is a step in the right direction but woefully inadequate.

India’s planning commission within a few years has to rethink and raise this substantially if the Government is serious about reducing the poverty in general, and about its growth to be inclusive.

However, allocating the funds to infrastructure is not the only requirement. It has to streamline various other issues such as various clearances which are required before a project can take off otherwise allocated funds will remain unutilised.

What is needed is for Government to establish single window organisations for each of the defined infrastructure industries. They should have clear guidelines that all approvals have to be provided say within 90 days of application. To ensure this happens employees of these organisations have to be made accountable.

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“DEVELOPMENT OF INFRASTRUCTURE”

The fast growth of the economy in recent years has placed increasing stress on physical infrastructure such as electricity, railways, roads, ports, airports, irrigation and urban & rural water supply and sanitation. All of which already suffer from a substantial deficit from the past in terms of capacities as well as efficiencies in the delivery of critical infrastructure services. The pattern of inclusive growth of the economy projected for the Eleventh Plan with GDP growth averaging 9% per year can be achieved only if this infrastructure deficit can be overcome and adequate investment takes place to support higher growth and an improved quality of life for both urban and rural communities.

So the Question is: How can India leapfrog this Infrastructure development requirement as it did 10 years ago in mobile telephony?

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“INDIA IS BESTOWED WITH A GEOGRAPHICAL MIRACLE”

• In the world, the Indian subcontinent is a geological wonder. In the South it has the vast Indian Ocean with no hindrance to wind flow, which provides all the moisture and in the North it has more than 2000 km of Himalayan mountain range with average height of 20,000 ft (above sea level). The Indian Ocean precipitates moisture on the subcontinent, as the Himalayas act as a great wall to prevent its escape. This rainfall is called “monsoon” (which in Arabic means Northerly Winds from the South).

• This is the reason that the Himalayan mountains has the third largest store of fresh water (snow) apart from the North & South Poles, in the world.

• Himalayan snow glaciers feed 14 rivers both into India and China which have water from melted snow for 365 days. India has the maximum as it gets 75% of this precipitation.

• So the question we have – how to harness this freshwater bounty from nature? One does not need to consume huge amounts of fossil fuel to desalinate seawater which increases carbon footprints on our planet.

• Presently India receives roughly 4 trillion cbm of rainfall every year. But only 48% of this rainfall ends up in India’s rivers. Just 18% of it is gainfully utilised for agriculture and human consumption in the subcontinent, the balance is wasted.

• So the answer lies here – Technological feat for our scientists and engineers on how to harness 80% of this monsoon precipitation to retain instead of just 18% at present.

• It is estimated that this will add to India’s existing GDP growth of 6% by another 5.2% making it the world’s fastest growth in history.

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“INDIA NEEDS CIVIL TECHNOLOGICAL LEAP TO HARNESS NATURE’S BOUNTY AND IN THE PROCESS, DEVELOP ITS

INFRASTRUCTURE” The interlinking of all rivers

This project was conceptualised in 2002 and planned completion due by 2016 but has yet to see the light of the day.

The project involved linking 37 rivers in India by thousands of miles of canals and dozens of large dams.

This feat alone will increase the rain catchment from present 18% to 50% as canals will move water from surplus to deficient regions also helping to avoid floods.

Rainwater harvesting in cities will enhance quality of water available to city dwellers and help increase sub-soil water. This has to be made compulsory for all cities above 5 million population. This will add 10% of rainwater catchment.

Construction of dams in linking rivers, will generate 34,000 MW of hydro power which is pollution free and does not increase carbon footprint.

Creation of lakes and ponds around the cities where rainwater can be drained, helps to raise the water table of sub-soil as well as moderating the temperature of cities thus reducing the use of air-conditioning.

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“SUMMARY” It will still take time to sort out the distortions in its society, economy

and bureaucracy.

Our ingrained “Raja – Babu” culture requires a new paradigm in order to uplift the Nations infrastructure.

Our education system has to undergo a change where emphasis should be on “Innovations” of what we do.

Societies blot against “bankruptcy” has to be softened in order to create more entrepreneurs. In a country of 1.1 billion people we need a lot more entrepreneurs to give a fair chance of success in all inclusive growth.

Country needs some audacious programmes in civil construction which can involve the imaginations of the whole nation.

As we are proud of our history, culture, and philosophy let us create some infrastructure in today’s India for which all of us can be similarly proud of such as connecting all rivers in the country.

To show the sincerity of my proposal I offer my services as well as those of my organisation’s to this audacious infrastructure development. -21-

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“CONCLUSION”

“CAN THIS AUDACIOUS DEVELOPMENT IN INFRASTRUCTURE MAKE INDIA SING IN THE RAIN AGAIN?......

……AS WE DID TILL THE 16TH CENTURY WHEN THE WORLD KNEW INDIA AS A GOLDEN BIRD CONTROLLING 30% OF WORLD TRADE.”

Thank you Ladies & Gentlemen for helping me to bring out a new concept.

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“LIMITATIONS OF INFRASTRUCTURE DEVELOPMENT IN INDIA”

By Ravi K Mehrotra CBEExecutive Chairman

Foresight Group, London

“India Calling 2009”

India-Europe Business Partnership Summit

1st October 2009

European Parliament, Brussels, Belgium