An Infrastructure Road Map

What should and should not be done by a new government in this crucial sector

Shyam Ponappa  | May 1

, 2014

Let's hope a newly elected government has the coherence and leadership to begin to deal right away with the mess in infrastructure, learning from what has gone wrong before. There are problems galore with our infrastructure, but a couple of examples stand out for what to look out for and avoid in future initiatives. There's little doubt that we must improve our approach to projects and undertakings in terms of functionality and efficiency, and that digital infrastructure is a key requirement.

While this article is on prioritising digital infrastructure, let us not underestimate the problems of deficient infrastructure. For sustained high growth, equally critical needs relating to power and logistics, with its interdependent linkages between transportation - by road, rail, air and water, and the associated holding/staging areas of terminals, airports and ports - need to be addressed with organisation and capital for capacity and de-bottlenecking.

One example is the multiplicity of schemes to register individuals, including the Unique Identification (UID) orAadhaar scheme, the National Population Register (NPR), the multipurpose national identity card, the voter identification card, and so on.1 Another example is the National Optical Fibre Network (NOFN) by Bharat Broadband Network Limited (BBNL). Accepting for the moment that these projects are well intentioned, there seem to be flaws right from the design stage, and on through execution. While the fallout from past errors has to be dealt with, it's most important to avoid these mistakes in fresh initiatives.

The UID and NPR projects apparently began without sufficient care in defining their purposes; they did not mesh seamlessly with each other and with other objectives and processes. This disjunction has carried through in implementing their design and execution.²

The NOFN aims to extend a countrywide network on the foundation of the existing fibre networks of state-owned entities Bharat Sanchar Nigam Limited (BSNL), RailTel and PowerGrid. This was to link over 245,000 village panchayats by the end of 2013, but is still undergoing limited trials. Given its magnitude, this requires vast capital investment that is unrelated to likely revenue generation in the short run. This critical infrastructure project is apparently behind time and over budget despite its reduced scope.3 That said, such monumental undertakings and changes can't be expected to go like clockwork, and the considerable efforts being made should eventually contribute to positive outcomes. For instance, a Confederation of Indian Industry report prepared with the help of KPMG in 2013 outlines possible business models and ecosystems in four areas, namely, education, health care, banking and agriculture.4 It's just that a thorough, comprehensive approach from the outset would be most beneficial.

In hindsight, what's lacking in both instances is proper organisation and co-ordination, the discipline of sound project management; and this is a missing piece in most areas of deficiency in governance, including infrastructure development. While a great deal of opprobrium is directed at corruption, there's little focus on these disciplines related to competent design, execution and delivery. Both depend on digital infrastructure. This is where real efforts must be focused to fix things, quite apart from dealing with corruption.

The "plumbing" of hardware, software, communications lines, and systems that enables effective use of information and communications technology is a critical necessity for our economic growth and well-being. While a balanced availability of energy, transportation and water supply/sewerage is required, in the short run, it is ICT that is likely to yield the broadest overall benefits and economic returns through multiplier effects, provided the others come up to minimum requirements. According to the World Economic Forum's (WEF's) Global Information Technology Report 2014 issued last week, the top 10 countries embracing information technology are Finland, Singapore, Sweden, the Netherlands, Norway, Switzerland, the United States, Hong Kong, the United Kingdom, and South Korea, in that order. The report includes a "networked readiness index" that ranks countries based on an assessment of their digital infrastructure and ability to use information and communications technologies to grow, foster innovation, and improve the well-being of their citizens.

Between 2012 and 2014, India dropped in networked readiness from 69th to 83rd out of 144 countries. By comparison, China dropped from 51st to 62nd, and Brazil from 65th to 69th. The WEF report says that India continues on its declining trajectory - and, among other things, that despite competitive markets (24th) and the availability of the latest technologies (58th), its difficult business environment and lack of digital infrastructure (119th) reflect in deprivation in education, resulting in limiting the creation of a wide skill base (101st). Our information technology and business process management (IT-BPM) sector is still largely oriented to external markets. For the financial year 2014, export revenues are expected to have grown 13 per cent to $86 billion. This is almost five times domestic revenues, estimated to have grown at 10 per cent to Rs 1.15 lakh crore (just over $19 billion).

Clear, convergent objectives and task-oriented processes and systems are not really part of our culture or vocabulary, barring sectors oriented to external markets like IT-BPM, and some corporations and professionals. There are, of course, rare individuals who excel, such as the former head of Delhi Metro, E Sreedharan, who maintained his reputation from the Konkan Railway and before that, Indian Railways. But it's not as if getting it right is a foregone conclusion for countries with a far better record of good systems and high-quality delivery - as evidenced, for instance, by Germany's increasing problems after turning away from nuclear energy. So, the incoming government needs to focus on starting to do things right, and that is the best way to create opportunities that can make the most of our demographics, and the potential of our large and increasing markets. It must view any scheme as part of an integrated, overarching system, and apply itself from the very beginning with care and understanding to defining the aims, objectives, and detailed processes so that they mesh and converge with what else is there.

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                                                                    Shyam no-space Ponappa at gmail dot com

(1) An explanation of Aadhaar and NPR: http://egov.eletsonline.com/2012/04/there-is-actually-no-conflict-between-uid-and-npr/
(2) A discussion on systems aspects such as authentication and data security: "Do we need the Aadhaar scheme?", February 1, 2012, Business Standard (http://goo.gl/j3P5vf)
(3) "Reality check on the broadband dream", April 27, 2014, Business Standard(http://goo.gl/C9h4im)
(4) "Creating viable business models for inclusive growth through the National Optical Fibre Network": http://www.kpmg.com/IN/en/IssuesAndInsights/ArticlesPublications/Documents/KPMG_CII_Broadband_Report_Final.pdf

Seeing the Whole Elephant

Shyam Ponappa / New Delhi November 23, 2008

While the world scrambles to prevent chaos, we seem to be moving in a dream...


The accompanying graphic has six opinions on how to assure growth, from economists and industry association heads at the India Economic Summit 2008, sponsored by the World Economic Forum and the CII.

These views give some idea of how much dissonance there is on what should be done for growth. Five of the six agree on investment in infrastructure (the top row). Thereafter, only two-at-a-time agree, on (a) regulations without stifling markets, (b) stimulating consumption: one through tax cuts, another through rate cuts, and (c) incentives to banks to lend.

Is infrastructure spending a good solution? Consider the evidence: our problem from even before the economic crisis was not funding for infrastructure, but inability to get projects implemented. For instance, there are the highway projects that started off well enough, then slowed over the last couple of years. In the last few months, many have been given up by our top constructors. A report in this newspaper attributes this to unrealistic project estimates and/or high interest costs.* Other instances are the steel and aluminium projects stalled because of land acquisition policies and practices. Therefore, efforts to spend on such projects are likely to have little immediate effect until the structural problems in their award and execution are resolved. What it will do is help anchor better expectations — one peg to raising confidence — because it will signal better developments for the future. But we have to survive the present in good enough shape to be able to enjoy the future…

In such circumstances, one would expect a certain alignment between the opinions of the industry chambers and of bankers, but this coherence is missing. Is this getting lost in the cacophony of a typical Indian dialogue-of-the-deaf, where everyone talks while no one listens, so there is no discernable common thread, let alone harmony and symphony?

However, three of the six opinions do address the immediate crisis of profits, revenues, and of continuing investment and consumer spending, the necessary ingredients to keep growth on track. This is what needs attention: the logic and urgency of time lines — what needs doing now, to keep from falling over the cliff.

From the perspective of a time line, let us distinguish between what can be done quickly for immediate effect in this crisis, as against what can be done for the medium- and longer term. First on our list, most likely, would be rate cuts, because of the impact and ease of execution. These would be in the SLR and CRR to provide a massive psychological cushion of liquidity, and in the repo and reverse-repo rates to bring down the tide of interest costs. Combined with the announcement of a redefined ‘priority sector lending’ which would include rollovers of loans except where there is demonstrated bad-faith, and a system (to be developed and introduced in the near-to-medium term) of online monitoring for compliance, with incentives and penalties. This would lead to credit availability for projects and businesses, now made profitable by the repricing of funds and projects. Real estate and property development, however, will need rescheduling with major asset re-pricing.

In terms of urgency, these would be the first steps to alleviate the situation immediately. Followed by steps to rationalise taxes, e.g., on petroleum products (Kelkar Committee recommendations). The objective: to reduce input costs and multiplier effects on the overall cost structure. Keep our steel mills, automotive companies and airlines running, our airports building… What this would achieve is continuing domestic-demand-driven growth, encouraging reasonable levels of consumption, and retaining employment. As for government revenues, the logic of profit-sharing, so clearly understood for petroleum exploration and some aspects of telecommunications after NTP ’99, would ensure that government makes much more from fat geese that lay many golden eggs, than from strangulating the few that are presently scratching about to eke out a living.

If this is not done, in all likelihood we will have escalating bankruptcies of capital-intensive enterprises, which, because of increasing repossessions and collapsing prices, may lead to a risk we have been spared so far: bank failures. If these events occur, the likely consequence is a severe recession in India as well — not for six months, but for many years — because both investment and spending will dry up, as will growth. And the great benefit of having become an attractive investment destination will, instead, become a frightful return to the uncertainties of pre-2003.

Those inclined to see a glass always half-full would say (next year and the next): But growth is 4-6 per cent in catastrophic global times. The rest of us will see it as running at half-speed, with all the attendant consequences for a talented people, once again held down by our collective inability to work things out for the common good.

shyam ponappa at gmail dot com

* ‘Few takers for highway projects’, BS November 17, 2008:
http://www.business-standard.com/article/economy-policy/few-takers-for-highway-projects-108111701067_1.html