The Indian economy now resembles a stalling aircraft — losing altitude, red alerts flashing, struggling to stay up. Despite the government's stated commitment to make it a $5-trillion economy in five years from now, there is every indication that India has an uphill battle at hand.
India’s extensive infrastructure needs are well known. Decades of underinvestment have left the country with dire deficits in such critical areas as railways, roads, ports, airports, telecommunications and electricity generation. In the World Economic Forum’s Global Competitiveness Report 2019, India ranked 55th out of 140 countries. The report criticized its transport, ICT and energy infrastructure as “largely insufficient and ill adapted to the needs of business,” adding “The Indian business community continues to cite infrastructure as the single biggest hindrance to doing business in the country.” Indeed, the nation’s infrastructure challenges are a major drag on economic growth.
India's ambition of sustaining its relatively high growth depends on one important factor: infrastructure. The country, however, is plagued with a weak infrastructure incapable of meeting the needs of a growing economy and growing population.
Lately, India’s GDP growth has slipped to around 4.5%. The economy has been hobbled by high interest rates, inflation and a lack of reform. Meanwhile, the government is mired in a slow-moving system of coalition politics, and it’s further constrained by a hefty fiscal deficit and a deepening current account deficit. Given this environment of fading growth, political gridlock and the high cost of capital, it’s not surprising that infrastructure spending has slowed in the past year or so. Yet India’s vast infrastructure needs are expanding all the time, and this presents enormous opportunities. The population has already surpassed 1.2 billion, and it continues to grow at a heady rate. Global trade is placing acute pressure on India’s inefficient ports. Rapid industrialization is intensifying the strain on the nation’s unreliable networks for electricity and water.
The railway system — already infamously overcrowded — faces rising demand for freight capacity. And the government has fallen far short of its plans to build 20 km of roads each day — an urgent requirement in a nation where 65% of all freight is transported by road and where traffic is so severe that the maximum highway speed for trucks and buses is only 30-40 km per hour. The need to upgrade India’s infrastructure is especially acute in huge cities such as Mumbai, New Delhi, Kolkata and Bangalore. India’s urban population of around 375 million is projected to reach 500 million by 2017. By 2030, the country is expected to have 68 cities with over 1 million residents. This torrid rate of urbanization means that massive investment will be required in everything from metro systems to clean water supplies, power generation to affordable housing.
Given the scale of this infrastructure gap, it’s small wonder that India is one of the world’s most attractive markets for companies in the infrastructure business. But India’s difficult business environment has sapped the enthusiasm of many foreign investors. Among other things, they complain about unpredictable regulations; bureaucratic delays in approving projects; endless struggles to secure land rights; and the government’s stalled attempts at reform. The country’s reputation for corruption is also a major deterrent. There is also a rising tide of domestic disillusionment about the government’s unwillingness to tackle the nation’s economic challenges.
India’s economy is growing rapidly, its population is expanding at an extraordinary rate, and there’s massive migration from the countryside to overcrowded cities like Mumbai and New Delhi. It’s a big challenge for urban infrastructure such as roads, the water supply, and the electricity system. The country is progressing very fast. We grew at 8% on average over the last few years. When the economy grows at this rate, it’s only natural that there’s huge pressure on infrastructure. Even though we’ve been building infrastructure, we’re not able to keep pace with demand. That results in huge productivity losses and delays, mainly in urban areas. For India’s economy to make sustained progress we have to build better roads so that the transportation of goods becomes efficient; we have to build ports; we have to enhance our power capacity; and we have to improve access to coal and other raw materials.
These are all very important requirements. India has done well to get to the current orbit. But to move to the next orbit, we need good leadership. To bring prosperity to the vast majority of Indians, we need to enhance our governance system, enhance our transparency and accountability, combat corruption, and enhance our infrastructure.
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