May 200918××

Introduction having roads and railway networks, sewers, water treatment plants, hospitals, housing, educational Infrastructure is a set of assets which underlines the institutions that contribute to social well being society and its economic activities especially, the observes IISI, Brussels. It also maintains that railways, roads, bridges, power generation and its infrastructure development in a country is good for distribution, water treatment plants, educational its economy and is helpful in generating the demand institutions, housing, hospitals and such other of steel. The steel industry's interest, coincide with facilities.national interest on this issue. The steel industry,

A renowned economist Rosenstein Rodan has therefore, has an enlightened self interest in

defined the role of infrastructure in an economy as an promoting the need for increased spending on

umbrella for many activities referred to as 'Social infrastructure development.

Overhead Capital'.

According to IISI, Brussels (now known as World Steel Association), inadequate infrastructure in a country holds back its economic growth and is a deterrent to industry's competitiveness and harming the quality of life. Those countries which have neglected infrastructure development are falling behind their competitors, where facilities are better. Infrastructure is not only an input to production process, but a public good, there is a social benefit in

GDP growth & Infrastructure Growth in India:

The growth of infrastructure in a country largely depends on the growth of its Gross Domestic Product (GDP).

India's GDP growth reached 9.6 percent in 2006-07 and it came down to 7.6 percent in 2007-08. Due to economic slow down it may decline further to about 6.5 percent in 2008-09.

According to a media report, India's infrastructure growth has dropped to 2.7 percent in 2008-09 as against 5.9

Infrastructure Development and Steel Consumption

Analysis

- Sanjay Sengupta

May 200919××

percent in the previous year. Government for the development of rural infrastructure in the country has detailed six goals for the development of Thus, despite a major thrust by the Government of India on the rural areas. The goals are :development of the country's infrastructure, India's

infrastructural growth has remained at a very low level during the first two years of the 11th Five Year Plan Period. The project will involve connecting 125,000 villages and The growth of steel consumption and that of manufacturing nearly 2.3 crore of rural households. This will require at sector are inter -dependent. Steel economists opine that least one 33/11 KW sub station in each block and at least for one percent growth of manufacturing sector's share in one distribution transformer in each village.GDP, steel consumption grows by 0.97 percent and for one percent growth of GCF in manufacturing sector. Steel Every inhabitant over 1000 population (500 in hilly areas) consumption goes up by 0.96 percent. to be provided with all weather roads. This measure will

involve in connecting about 66,800 rural inhabitants by the It is the growth of infrastructure that helps the growth of year 2009.the economy of a country. Construction builds the basic framework of the economy on which infrastructure Each inhabitant in rural areas will have a source of safe and development takes place. The construction industry has potable drinking water. A total of 55,607 inhabitants are to one of the strongest economic linkages with other sectors be covered by 2009. In addition the Planning Commission of the economy and has a very strong multiplier effect. The has estimated that the 2.8 lakh habitants, which have share of construction sector is estimated at 6-7 percent of slipped back, after having been developed the above India's GDP. But, if its multiplier effect is taken into account source of drinking water, are also to be covered under the on the critical sectors like steel and cement, the share in 'Bharat Nirman Programme'.GDP would be much higher.

About 10 million hectare of additional irrigation capacity is to be created under the programme. This target has been

The share of secondary sector in GDP which includes broken up into plants through the major, medium and small mining, manufacturing, oil and gas, construction, water irrigation projects and the ground water development, supply etc. grew at about 26 percent between 2005-06 and whenever necessary.2007-08 but in 2008-09, the same is likely to go down by a few percentage points.

Sixty lakhs houses are to be built for rural poor by the year On the other brand, the tertiary sector which comprises of

2009. This objective will be implemented through Indira trade, hospitality, transport, real estate etc. posted growth

Awas Yojna. The government expenditure on this account of 54-55 percent between 2005-06 and 2007-08. In 2008-

may touch Rs. 1800 crore by 2009.09, it may reach a higher level.

Thus, the growth of infrastructure is poised to be retarded Each village to be connected by telephone services in in 2008-09 due to economic slowdown in the country.future. About 68,882 villages have been targeted to be

Investment on infrastructure which increased from 31.5 connected by 2007-08. About 22 percent of these target

percent in 2005-06 to about 34 percent in 2007-08 may areas need to be connected through satellite phone and

show a remarkable decline in 2008-09.network as these are located in far flung areas.

In the central budget for 2007-08 and 2008-09, a total additional allocation of Rs. 53,437 crore has been provided

The Bharat Nirman Programme launched by the on various schemes under the Bharat Nirman Programme specially for drinking water, rural development scheme, sanitation scheme and Vidyutikaran Yojna.

However, despite the sincere efforts of the planners, the projects under the Bharat Nirman Programme may not be completed by the targeted date. This is mainly due to lakh of sources at the ground level, slow progress in work by the contractors, lack of proper monitoring by the authorities and intervention by local political parties which are constraints to developments. Steel consumption in the infrastructure development in the rural areas may decline about 20 percent in 2008-09.

Infrastructure and Construction :

Share of Secondary Sector in GDP is Stagnant & now Declining :

Governmen t ' s Thrus t-on- In f ras t ruc tu re Development :

(i) Provision of Electricity by 2009

(ii) All Weather Roads

(iii) Supply of Safe Drinking Water

(iv) Creation of Additional Irrigation Capacity

(v) Housing for Rural Poor

(vi) Each Village to be Connected by Telephone

? Bharat Nirman Programme

Additional Allocation for Bharat Nirman Programme

Analysis

May 200922××

Trust on the Development of Basic Infrastructure

? Categories of Indian Roads

(I) Inland Transportation

(b) Railways

India's road network may be divided in three categories as follows :

(a) Road

India has one of the largest network of roads in the world. However, the road density in the states of Orissa, Jharkhand and Chhattisgarh are not adequate to sustain the load of the greenfield and brownfield expansion of steel capacity planned in these three states.

Orissa has comparatively better road density but the quality of the roads in the state is extremely poor. The share of surfaced roads in the total road network in 2005-

NHDP-III was under execution.06 was only 22 percent. The road density in the states of

According to JPC's ERU, 24,072 million ton-km of raw Jharkhand and Chhattisgarh per 100 sq.km is 14.41 Kms materials will have to be moved for the entire country up to and 26.16 Kms respectively against a national average of 2011-12 while the road traffic for finished steel would be 74.13 Km.26,228 million ton-km by 2011-12.

According to JPC's ERU unit, Orissa's estimated road Work on the Golden Quadrilateral (GC), connecting the four traffic may reach 6460 million ton-Km for raw materials metro cities, is almost complete. The work on NHDP and 5767 million ton-Km for finished steel by 2011-12. projects is quite satisfactory and the 11th plant targets are Similarly, Jharkhand will have a road traffic of 3978 million likely to be achieved in a big way.tons – km for raw materials and 4977 million ton-km for However, the picture in grim in case of state highways and finished steel in 2011-12. In case of Chhattisgarh, the major district roads. Besides resource crunch at the ground figures for raw materials and finished steel would be 3604 level, the work of road development are getting delayed million ton – km and 3634 million ton – km respectively.due to the opposition to land acquisition, delay in removal According to JPC's ERU, there three states will have to of utilities and long delay in getting statutory clearances.ensure road movement of 58.3 percent of raw materials and

54.8 percent of finished steel of India's road transportation for the iron and steel sector in 2011-12. Considering the road infrastructure in these three states, it will be impossible for them to handle the above road traffic for raw materials and finished steel in 2011-12.

(a) National Highways including National Highways Development Project stretches.

(b) State Highways and major district roads.

(c) Rural roads.

The National Highways, running across the length and breath of the country have an estimated length of 58,112 km. However, the National Highways comprise only about 2 percent of the country's road network, but they carry about 40 percent of the road based traffic. The railways transport raw material for steel making, steel According to the announcement of India's Prime Minister in distribution to consuming centres and also for exports. The June, 2006 in Bangalore, to speed up the NHDP projects, railway facilities are needed to be expanded on a massive the investment has been increased to Rs. 2,20,000 crore. scale in view of the large scale greenfield and brownfield

expansions up to 2011-12. The outlay for the railways as a A7 Phase project will be executed by 2013-14. In addition percentage of total plan outlay has come down from 10.3 to NHDP I and NHDP II, NHDP III will be added which percent in the 4th Five Year Plan to 6.8 percent in the 10th together will provide 11,000 km highways to connect the Five Year Plan. However, during the 11th Plan period, this state capitals, major tourist spots and economic zones. has been proposed to go up to 13.7 percent.Upto 2007-08, 6949 km of roads have been finished, while

548 km was under execution under NHDP-I projects. The railway network in the three states where major steel Under NHDP – II projects 629 km was finished and 5142 km investments have been proposed i.e. Orissa, Jharkhand and were under execution and 1609 km road building under Chhattisgarh, are totally inadequate to handle the traffic

Analysis

originating in the steel sector during the 11th Plan period. The performance of the Indian Railways has improved in recent years. It carried a total traffic of 483.4 billion ton kilometers of total traffic in 2006-07 as against 441.6 billion ton-km in the previous year.

Indian Railways are gearing up to handle the situation in the following manner :

? By building freight corridors.

? Carrying excess materials than the capacity.

? Online booking of freight.

? Laying new railway tracks.

The reasons behind the recent turnaround of the railways were increased volume of materials transported, reduced

In the 11th Plan, capacity addition of 70,000 MW has been unit cost and optimum utilization of physical and human

planned and the power sector will have the highest share of assets. The present policy is dynamic and market driven

30.4 percent in the total plant outlay.which has laid emphasis on prioritization of investments in

Experts are, however, doubtful about achieving the target projects that could fetch maximum returns at the lowest keeping in view the fact that realization of target was only cost, in the least time.47 percent in the 9th Plan and 57 percent in the 10th Plan.

The replacements and renewals of assets overdue and in Nine Ultra Mega Power Projects each with 4000 MW arrears were carried out through a 'Special Railway Safety capacity have been planned during 11th Plan period. Fund' of Rs. 17,000 crore in a time span of six years. Such However, according to experts, the ground reality is that overhauling of assets improved reliability, imparted these may not be fully operational by 2011-12.greater fluidity and enable higher through puts in the A Parliamentary Committee on Energy in their report in railway system.April, 2007 severely indicted the Power Ministry for In the Railway Budget for 2008-09, the railways have shipshod planning, lack of monitoring and inefficient targeted a traffic of 200 Mt for the steel industry by 2011-execution. The committee found it 'abysmally 12 from 120 Mt. Most of the new dedicated iron ore routes disheartening' that the 10th Plan targets were not fulfilled will be constructed or upgraded for 25 ton axle load while because of delay in the award of works orders and some routes will be made suitable for running 30 ton axle constrains in equipment suppliers.load trains. Most of the dedicated routes for coal movement

will have 25 tone axle load wagons. All there efforts will The National Maritime Development Programme (NMDP) benefit the iron and steel industry.announced by the Government, envisages an investment of Announcements have been made to use stainless steel Rs. 55,804 crore in 276 projects at major ports thronge coaches in mails and express trains as also to use of public private partnership (PPP) in two phases up to 2011-12.stainless steel coal wagons. These actions will boost the In the first phase of NMDP, 180 projects will be taken up growth of Indian stainless steel industry.involving a total of Rs. 31,871 crore. Resources needed would be raised through budgetary support of Rs. 1250 India's power situation is dismal. Low Plant Load Factor crore, internal generation by major ports : Rs. 8991 crore, (PLF) in generation and huge loss of power in transmission private investment of Rs. 19,112 crore while NHAI, and distribution are adversely affecting the power sector.Railways and other organisations would provide Rs. 2518

The Working Group on steel for the 11th Five Year Plan has crore.

estimated an additional power requirement of 3276 MW for The Indian iron and steel sector is a major user of port the industry.facilities accounting for about 25 percent of all traffic handled at ports. The most important items traded through ports by the steel industry are iron ore (export), saleable steel (export) and coking coal (import). According to experts, steel industry's dependence on ports is likely to increase in future as the share of 'Blast Furnace Hot Metal' in steel production is likely to remain over 60 percent during the 11th Plan period for which the producers will have to import higher volumes of low-ash coking coal.

The share of port development in the total plan outlay for the 11th Plan has been proposed at 3.6 percent amounting

(d) Ports

(c) Power Sector

May 200923××

Analysis

to Rs. 73,941 crore. Two years of the 11th Plan period has already passed. It is doubtful whether the port development targets will have even 80 percent achievement during the entire 11th Plan period i.e. upto 2011-12.

There are 449 airports / airships in India of which the Airports Authority of India owns and manages 92 airports. The Indian airports vary from state-of-the-art standards to downright pre-historic conditions.

Delhi and Mumbai airports which account for 52 percent of India's total air traffic are being modernised.

The GMR-led consortium has bagged the Delhi Airport (a) Additional power generation capacity of 70,000 MW.

project and the first phase of development alone will cost (b) Reaching electricity to all un-electrified hamlets and about Rs. 8,900 crore. A new integrated terminal is providing access to all rural households through Rajiv expected to be ready by 2010, in time for the Gandhi Grameen Vidyutikaran Yojna.Commonwealth Games to be hosted in Delhi. Delhi's Indira

Gandhi International Airport is also being equipped to handle 20 million passengers by 2010. (a) Six-laning of 6,500 km of the Golden Quadrilateral and

some selected highways.GVK Group with its consortium which includes the Airports Company of South Africa has won the bid for the (b) Four – laning of 6,736 km of North – South and East – development of Mumbai's Chhattrapati Shivaji International West corridors.Airport. The GVK consortium holds 74 percent stake in the (c) Four – laning of 12,109 km of National Highways.project and the balance 26 percent is under the control of

(d) Development of 1,000 km of Expressways.AAI. Work has already started for the airport development

(e) Widening of 20,000 km of National Highways to two but may be completed after 2011-12. This will be about Rs. lanes.10,000 crore project.(f) Constructing 8,737 km of roads, including 3,846 km of Chennai and Kolkata Airports – AAI will handle the National Highways in the North-East.expansion and modernization of these two airports. It is

uncertain when the development work at these two airports will be completed. (a) Constructing of 1,65,224 km of new rural roads.

The Hyderabad airport built by GMR backed consortium (b) Renewing and upgrading the existing 192,464 km roads has been completed. The airport is A-380 compatible and covering 78,304 rural inhabitants.has the India's longest runway of 4260 meters. The airport named Rajiv Gandhi International Airport is located at (a) Constructing dedicated freight corridors between Shamshabad about 35 km from the capital city Hyderabad Mumbai and Delhi as well as between Ludhiana and and its initially facing connecting problems. Kolkata.The new Bangalore Airport is being built by a consortium (b) Lying of 10,300 km of railway lines, gauge conversion led by Siemens Projects Venture, United Zurich Airport, of over 10,000 km of railways.L&T etc. The initial cost was pegged at Rs. 1,400 crore but

(c) Modernisation and redevelopment of 21 railway now it seems the cost may go up to Rs. 2000 crore. When

stations.completed the passenger terminal will be able to

(d) Introduction of private entities in container trains for accommodate over 2,700 passengers with a floor area rapid additions to existing rolling stock and capacity.spread over 71,000 sq.meters.

All the development work of the Indian airports mentioned Capacity additions of 485 Mt in Major Ports and 345 Mt in above are destined to face time and cost overruns.Minor ports in different ports of the country.During the 11th Plan period Rs. 34,378 crore has been

allocated for the Airports segment which is about 1.71 percent of the total plan outlay for the Infrastructure (a) Modernisation and redevelopment of 4 Metro and 35 Development during the plan (2007-08 to 2011-12). non-Metro airports.

(b) Construction of 7 greenfield airports.

(c) Construction of 3 airports in the North East.Some of the physical targets provisionally set by the (d) Upgrading CNS / ATM facilities.Planning Committee for the country's infrastructure development are presented below sectorwise :

(e) Airports

? Electricity Generation

? Rural Roads

? Railways

? Ports

? Airports

? Telecom & I.T.

Provisional Physical Targets for Infrastructure Development during the 11th Plan Period.

? National Highways

May 200924××

Analysis

May 200926××

(a) Achieving a telecom subscriber base of 600 million with 200 million r u r a l t e l e p h o n e connections.

(b) Achieving a broadband coverage of 20 million as well as 40 million internet connections.

Development of irrigation facilities 16 million hectare through major, medium and minor irrigation works.

Norms of Steel Demand for Various Infrastructure Projects

Norms of steel demand for elapsed. According to experts, not even 70 percent of the various infrastructure projects are shown in Table – 1. investments has been executed at the ground level in these

two years.

The sectorwise projections of investment on infrastructure In the 9th and 10th Five Year Plans, the participation of the during the 11th Plan (2007-08 to 2011-12) are presented private sector in development of infrastructure was not in Table – 3.satisfactory.

Now that the Government of India has emphasized the need of Public-Private Project (PPP) model in the development of infrastructure in the country, the private sector participation may be healthy during the 11th Five Year Plan.

The extent of private sector participation in some selected sector for infrastructure development as envisaged during the 11th Plan period is shown in Table – 2.

It has been estimated that the total investment on infrastructure development was about Rs. 880, 515 crore

According to a media report, domestic demand is likely to or US$ 214.76 billion in the 10th Plan. Against this, the total

recover by the first quarter of 2009-10 on the back of a rise investment proposed for infrastructure during the 11th

in construction activity pushed by the stimulus packages Plan amounts to Rs. 2,027,169 crore or US$ 494.43 billion

announced by the Government.with a growth of 130.22 percent over the 10th Five Year

“Past – June, 2009 demand for steel is likely to pick-up as Plan. Massive investments have been planned for the construction activity may improve especially in rural and development of various infrastructure sectors during the semi-urban areas” observed Deloittee India's Senior 11th Plan period. Two years of the plan period have Director. “With the government allowing state – run infrastructure financing firm IIFCL to raise Rs. 40,000 crore through tax-free bonds for refinancing PPP projects, as part of its fiscal packages, steel demand is likely to look upwards,” he said.

Steel demand in the second half of 2008-09 went down by about 30 percent due to global industrial downturn as compared to the first half of the year.

The joint founder of 'Feed Back Ventures' and the

? Irrigation

Envisaged Private Sector Participation in India's Infrastructure Growth During the 11th Five Year Plan

Steel Demand for Construction / Infrastructure after June, 2009

Sectorwise Investment on Infrastructure During the 11th Plan :

'Right to Information' for Implementation of Infrastructure Projects

Analysis

Table – 1 : Norms of Steel Demand in Infrastructure Projects

Investment Programme Demand for Steel (Norms / Illustration)

NHDP 100 tons for Rs. 50 million spent i.e. 1.11 Mt plus additional

demand for flyovers / elevated roads.

Railways 300 tons for a double line per km, 24-30 tons for each

wagon, additional demand for old bridges.

Power Projects 33,000 tons for 500 MW, additional demand for special steels

such as CRNO / CRGO.

Power Transmission 7,000 tons for 200 km, 400 kv (double circuit line)

Oil and Gas Well platform requires 2,000 tons of structural steel and a process

platform requires 10,000 tons of steel. A 6-Mtpy capacity refinery

required 85,000 tons of steel.

Housing Residential blocks typically require 1000 to 2000 tons of steel per

block.

Source: Compiled on the basis of a paper presented by Shoeb Ahmed D(c),SAIL at 3rd Steel Raw Material Conference in Delhi, 2007.

May 200927××

Chairman of CII's Infrastructure Board, Mr. Infrastructure services are intermediate inputs to Binayak Chatterjee in a statement on 18.03.2009, has said production and any reduction in these costs raise the that the 'Right to Information' criteria should also be applied profitability of production, thus permitting higher levels of to inform about the huge amount of money that is being output income and/or employment. This is true for steel planned for infrastructure development in the country and industry as well.the details of the projects which are being actually

India's Crude Steel Production may reach 55/56 Mt in implemented.

2008-09. ERU of JPC and earlier estimated a steel He said two years of the 11th Five Year Plan is going to production between 87 to 93 Mt by 2011-12 as against the elapse on 31.03.2009. Hence, it is essential to know the governments aim of 124 Mt. But finally, the country's crude details of the implementation of the infrastructural projects steel production may hover between 80-82 Mt in 2011-12. as these are regarded as the most important c o n t r i b u t o r s t o e c o n o m i c development.

He also said that the g o v e r n m e n t h a s a n n o u n c e d b i g stimulus packages for i n f r a s t r u c t u r e development to tide over the present economic slowdown. Planning Commission has proposed to raise t h e s h a r e o f i n f r a s t r u c t u r e development in GDP from 5 percent in the 10th Five Year Plant to 9 percent in the 11th Plan.

M r . C h a t t e r j e e Even this level can be achieved by major improvement in observed the planning does not ensure development. infrastructure development.Monitoring and execution are essential for this. Hence, like Apart from planning, the government should take the GDP, Inflation Index etc. another index 'Gross Capital responsibility to monitor the progress of the projects and Formation in Infrastructure' should also be created to remove the constrains which delays completion.provide detailed information on infrastructure

development in the country, on a regular basis. Further, the country has to resolve many of the legal, procedural and financial issues to evolve a model of public – private partnership, which can deliver the desired The development of infrastructure in the country was not development of the infrastructure sector. The evolved given due weightage in India's planning up to the 9th Five model should promote fairness, transparency and fair Year plan period.pricing of materials.

Conclusion

Table – 3 : Sectorwise Projections of Investment on Infrastructure During /the 11th Five Year Plan – Bottom Up Estimates (Rs. Crore at 2006-07 prices)

Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total 11th Plan

Electricity (Incl. NCE) 74,205 92,829 116,541 146,914 186,038 616,526

Roads 51,352 54,318 58,729 67,901 79,516 311,816

Telecom 33,075 39,834 50,293 63,408 80,390 267,001

Railways (Incl. MRTS) 33,206 39,965 48,626 59,738 76,466 258,001

Irrigation (Incl. Watershed) 27,002 33,839 42,625 53,946 65,718 223,131

Water Supply & Sanitation 25,840 31,110 37,868 46,555 57,754 199,127

Ports 9,691 11,740 14,271 17,397 20,841 73,941

Airports 6,223 6,459 6,814 7,296 7,956 34,748

Storage 3,777 4,098 4,446 4,824 5,234 22,378

Gas 2,984 3,454 4,005 4,651 5,407 20,500

Total Investment (Rs. Cr.) 267,355 317,646 384,217 472,630 585,321 2,027,169

Total (US$ Billion) 65.21 77.47 93.71 115.28 142.76 494.43

Investments as % of GDP 5.95 6.45 7.19 8.12 9.22 7.53

Source : Consultation Paper : Investment in Infrastructure during the 11th Five Year Plan – Planning Commission – October 2007

Note: Totals may not agree in some cases due to rounding off.

Analysis

Table – 2 : Extent of Private Sector Participation in Infrastructure Development During the 11th Plan Period

Sector Funds Required from % Contribution of

Private Sector (Rs. Crore) Private Sector

Railways 60,000 23.2

Roads (NH) 87,735 38.4

State Roads 32,000

Ports 36,868 49.9

Power 218,037 35.3