India Roundtable

QUESTION: India is building highways, airports and power stations at a faster rate than ever before. But it often seems as if the progress does not match the infrastructure needs. Is enough being done, and if not, how would you fix the problem?

Dominic Barton
Dominic Barton
Chairman of the Asia Region, McKinsey
There is no doubt that India must augment its infrastructure build-out for the economy to continue on its current growth trajectory. China invested early on and dramatically in building world-class infrastructure to attract investments and spur economic growth. India's investments in infrastructure have been more recent but have more than doubled from about $13 billion in 1997-98 to $34 billion in 2005-06 and current plans reveal the aspiration to spend $326 billion over the next five years. Increasing pragmatism on the government's role and in public-private partnerships is evident from the early results on several fronts:
  • India has gone from being the highest-cost to the lowest--cost mobile telephony market in about 10 years.
  • The New Delhi and Mumbai airports have been privatized despite much resistance, and the approvals for modernization of 35 airports are close to being in place.
  • 18 Ports projects have secured private sector participation, and average throughput rates have improved by over 40 percent in the last five years, with turnaround time down by over 20 percent during this period.
  • Completion of Phase One of the Delhi metro project; recent announcements to build the Mumbai Metro; and the constitution of the Jawaharlal Nehru Urban Renewal Mission (JNRUM) suggest the focus on urban renewal is beginning to gather momentum.
  • Big ticket projects like the Bharat Nirman Programme to build rural infrastructure; plans to upgrade 46,000 kms of roadways -- including building 10,000 kms of 4 -- lane roads, and 20,000 kms of 2 -- lane roads, and capacity additions of 70,000 mega watts of power are other examples of plans in place here.
  • Lastly, a growing group of Indian private sector players like the GMR Group, GVK, Reliance, Unitech, DLF Group, Punj Lloyd and others that have world-class scale, access to capital and financial markets, are working with government agencies to lend scale, expertise and commitment to public-private partnership programs.
However, several important challenges remain. In particular, land market "barriers" (e.g. unclear land titles and databases); lack of long-term financial instruments to meet the equity and debt needs of large infrastructure projects; weaknesses in policies and the regulatory environment -- often a result of coalition politics (e.g. frequent policy changes); and red-tape and bureaucracy at the lower levels in the government are areas in need of immediate reform.

Taking measures such as repealing the Urban Land Ceiling Act (by state governments), resolving unclear land titles by setting up "fast-track courts," computerizing land records, raising property taxes and changing tenancy laws are vital to reform the land market. Similarly, more comprehensive deregulation of sectors like coal; establishing a power exchange and partial or complete privatization of power distribution companies are critical to improve India's crippling electric power deficit situation. Stabilizing the regulatory environment and lowering corruption and red-tape are also necessary steps to improve investor confidence and stimulate private sector participation in infrastructure building in India. In summary, over the last few years, India has made early progress in a long arduous journey.