Social overhead capital, also known as infrastructure, has been highly correlated with economic growth and is also a formidable challenge in India’s development roadmap. The infrastructure deficit and inadequate supply of quality infrastructure has conspicuously and severely constrained the growth and development process. Equally debilitating has been the skewed distribution of infrastructure development in terms of their geographical distribution and accessibility to various settlements. Prime Minister Narendra Modi has targeted a $5 trillion economy by 2025, making India the third largest economy in the world. Under such formidably challenging articulation of the growth regime, the essentiality of leapfrogging in the infrastructure sector has become more focussed. The latest Economic Survey states that India needs to spend 7-8 percent of its gross domestic product on infrastructure annually. This translates into an annual infrastructure investment of $200 billion as against its current investment of about $100-110 billion annually.

The Global Competitive Index measures national competitiveness in terms of institutions, policies and factors that determine the level of productivity. India has an overall rank of 40 out of the 137 countries in the Global Competitive Index with a score of 4.59 in 2017-18. Switzerland ranks first, the US second and China third with a score of 5.86, 5.85 and 5 respectively.

State of infrastructure

Over 5.90 million km of roads exist today. Revenue earning freight loading by Indian Railways reached 1,221.39 million tonnes during 2018-19. With a coverage of 35,488 route km, 52 percent of the total railway network has been electrified. Besides the existing 107 airports, Greenfield airports are being developed in remote locations and six brownfield airports (Guwahati, Lucknow, Jaipur, Ahmedabad, Mangalore and Thiruvananthapuram) are being leased out under a public-private partnership mode for operation, maintenance and development. Currently, air connectivity is available to more than 22 states and union territories (out of the 28 states and nine union territories).

In the crucial sector of electricity generation and supply, several reforms were initiated. India began with an installed capacity 2,300 megawatts in 1950-51, and has achieved a spectacular level of 0.39 million megawatts in 2017-18. In the shipping sector, India’s fleet strength reached 1,405 ships with a deadweight tonnage of 19.22 million by 2019. The first inland waterway multimodal terminal at Varanasi started in 2018. Under the National Waterways Act 2016, 111 countrywide waterways were declared as National Waterways for shipping and navigation, many of them connect with immediate neighbouring countries like Nepal, Bangladesh and Myanmar. Telephone connections of over 514 million in rural and 669 million in urban areas are available with wireless telephony constituting 98.17 percent. National tele-density reached 90.10 percent in 2019.

PPP model

A series of far-reaching interventions have been made to boost infrastructure in urban and rural areas. Since infrastructure investments require long-term, patient capital, the government established the $6 billion National Investment and Infrastructure Fund in 2015. The Public-Private Partnership Appraisal Committee is a critical element. The public-private partnership model initiated in 1997 has undergone several structural changes. A series of reforms as demonstrated in newer legislations like the Electricity Act 2003, the amended National Highways Authority of India Act 1995, the Special Economic Zone Act 2005, and the Land Acquisition Act 2013 carried in them strong provisions for the proliferation of public-private partnership schemes. There are replicable instances under the public-private partnership model like electricity distribution projects, road and port projects, and the airports in Bangalore, Hyderabad, Delhi and Mumbai.

However, there are several examples including the pullout of the Reliance Infrastructure-led concessionaire from the Airport Express Line of Delhi Metro that have damaged the furthering of the public-private partnership model. Experts attribute poor appraisals, inadequate preparations, flawed risk-sharing, inappropriate business models and fiscal uncertainties and skewed qualification criteria for the sloth that characterises public-private partnership. Inadequate risk-sharing and mitigation measures, ill-equipped consultants, untenable contracts, mistakes in the planning stage, delayed clearances and aggressive bidding are other reasons.

The Vijay Kelkar Committee on Revisiting and Revitalising the Public-Private Partnership Model of Infrastructure Development in its 2015 report recommended that the focus of public-private partnership contracts should shift from fiscal benefits to service delivery for citizens. Since the public-private partnership model requires the involvement of a private partner to leverage financing and improve operational efficiencies, state-owned enterprises or public sector undertakings should not be allowed to bid for public-private partnership projects. This model should not be adopted for very small projects, since the benefits are not commensurate with the costs.

It also recommended the guidelines for risk allocation and formulating a public-private partnership law. It suggested that the Prevention of Corruption Act 1988 be amended to distinguish between genuine errors in decision making and acts of corruption by public servants.

There have been some well thought out policies and strategies to boost both public and private investment in the infrastructure sector. Though India has adopted a wait and watch approach on China's far-reaching Belt and Road Initiative, there are several incentives for India to join the $100 billion China-led Asian Infrastructure Investment Bank (AIIB) set up in 2015 with a membership of 72 countries. India is the second largest shareholder in the Asian Infrastructure Investment Bank with 7.5 percent as against China’s 26.06 per cent, Russia’s 5.93 percent and Germany’s 4.15 percent of the voting shares.

There could be a series of Asian Infrastructure Investment Bank investments in a range of national, cross-border and regional projects. India as a pivot in these projects will require deeper reforms at the federal and provincial levels. It has made a remarkable head start. At least five Indian provinces including Andhra Pradesh, Karnataka, Gujarat, Madhya Pradesh and Tamil Nadu have now nine Asian Infrastructure Investment Bank-funded projects to the tune of $2.17 billion. These projects are spread over the water supply, power, transport and financial sectors. India is most appropriately placed to use Asian Infrastructure Investment Bank funding for sub-regional ventures involving Bangladesh, Bhutan, India and Nepal (BBIN).