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LESSON 13
ECONOMIC REFORMS IN INDIA

Context
Some rethinking on economic policy had begun in the early 1980s, by
when the limitations of the earlier strategy based upon import
substitution, public sector dominance and extensive government control
over private sector activity had become evident, but the policy response
was limited only to liberalising particular aspects of the control system.
IN RESPONSE to a fiscal and balance of payments crisis in1991, India
launched a programme of economic policy reforms. The programme,
consisting of stabilisation-cum-structural adjustment measures, was put
in place with a view to attain macroeconomic stability and higher rates of
economic growth. Following subject matter will analyze the need and
consequences of economic reforms in India initiated in the year 1991.

Objective

After going through this unit, reader will be able to comprehend the

 Need for economic reforms in India

 State of economy before 1991

 Impact of economic reforms initiated in 1991

Introduction:

After several years of being a largely closed economy, India initiated the
process of opening up its economy in 1991 when it introduced far-
reaching economic reforms of deregulation and liberalisation. These
reforms have unlocked India’s enormous growth potential and unleashed
powerful entrepreneurial forces. Since 1991, successive governments,

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across political parties, have successfully carried forward the country’s

economic reform agenda.

It has been repeatedly claimed by the proponents of reform policies that

the crisis of the Indian economy in 1991 and its earlier slow growth were
the result of too much state involvement in the economy, both as direct
producer and as regulator. As a corollary, it was claimed that the policies
of deregulation and opening up of the economy to foreign capital and
commodity imports, accompanied by a process of privatization and
withdrawal of the state to make way for the "efficient" private sector,
would unleash the inherent dynamism of the economy and that rapid
growth, greater employment and reduction of poverty will follow.

During this reform period, India has witnessed increased participation in

world trade, consistent, high economic growth and an increasingly
favourable environment for domestic and foreign investors.

India is a founder member of the GATT (General Agreement on Tariffs

and Trade) and is a signatory to the WTO (World Trade Organization).
India continues to play a significant role in the current WTO negotiations.

Going forward, infrastructure development is a major focus area and the

government is actively encouraging private investment to bridge the gap.
Projects that are already underway include the “Golden Quadrilateral”
highway plan (covering 5,850 km and costing US$ 5.5 billion) to link the
four major metropolitan cities (Delhi, Mumbai, Chennai, Kolkata), the
“Sagar Mala” project for the expansion and modernisation of ports, inland
navigation and maritime transport and the privatisation of airports of
Mumbai and Delhi.

The Government has recently passed a Special Economic Zones (SEZs)

Bill. SEZs are treated as deemed foreign territory with no import or
export tariffs and extended periods for waiver of income taxes. Fourteen
SEZs have been set up and many more are in the pipeline.

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Legislation on Intellectual Property Rights (IPRs) has been adopted by

the country’s Parliament. All IPR laws are TRIPS (Trade Related Aspects
of Intellectual Property Rights) compliant with a fully functional
Intellectual Property Appellate Tribunal.

Indian Economy (Since 1947-1990)

Hindu rate of growth was a derogatory expression used to refer to the

low annual growth rate of the economy of India, which stagnated around
3.5% from 1950s to 1980s. The term, was coined by Indian economist
Raj Krishna.

The term suggests that the low growth rate of India, a country with a high
Hindu population was in a sharp contrast to high growth rates in other
non-Hindu Asian countries, especially the East Asian Tigers, which were
also newly independent. This meaning of the term, popularised by
Robert McNamara, was used disparagingly and has connotations that
refer to the supposed Hindu outlook of fatalism and contentedness.
However as noted journalist Arun Shourie has pointed (see quote below)
out the so called Hindu rate of growth was a result of socialist policies
implemented by staunch secular governments and had nothing to do
with Hinduism.

...because of those very socialist policies that their kind had swallowed
and imposed on the country, our growth was held down to 3-4 per cent, it
was dubbed — with much glee — as ‘the Hindu rate of growth’.

Licence Raj refers to the elaborate licences, regulations and the

accompanying red tape that were required to set up business in India
between 1947 and 1990.[1] The Licence Raj was a result of India's
decision to have a planned economy, where all aspects of the economy
are controlled by the state and licences were given to a select few. The
term was coined by Indian statesman Chakravarthi Rajagopalachari, who
firmly opposed it for its potential for political corruption and economic

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stagnation and founded the Swatantra Party to oppose these practices.

In his newspaper, Swarajya, C. Rajagopalachari wrote:

"I want the corruptions of the Permit/Licence Raj to go. [...] I want the
officials appointed to administer laws and policies to be free from
pressures of the bosses of the ruling party, and gradually restored back
to the standards of fearless honesty which they once maintained. [...] I
want real equal opportunities for all and no private monopolies created
by the Permit/Licence Raj."

Long after the death of Rajagopalachari, the government of India finally

initiated liberalization under the Prime Ministership of PV Narasimha
Rao, which resulted in substantial growth in the Indian economy, which
continues today.

The Licence Raj is considered to have been dismantled in 1990, when a

macroeconomic crisis forced India to usher in economic reforms,
including dismantling the licensing regulations in order to attract Foreign
Direct Investment and private businesses.

Rationale of LPG (Liberalisation, Privatisation and Globalisation)

Policy: THE ECONOMIC REFORMS

India was faced with a serious balance of payments (BOP) crisis in 1990-
91, following a decade of expansionary policies, accompanied by both
indiscriminate commercial borrowing abroad and trade liberalization, and
in the immediate context of adverse international developments
especially with respect to the price of oil. Thanks to the same
expansionary policies financed by large scale internal borrowing and
large budgetary deficits arising from an unwillingness to tax the rich to
finance increased government spending, India also ran into a fiscal
crisis, with government's revenues falling far short of expenditures. The
twin crisis of BOP and fiscal crunch was used by the minority
government of Narasimha Rao to push through a programme of
structural adjustment dictated by the world bank and the IMF. The

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essence of this programme, pursued especially vigorously by the NDA

government during the last three years, has consisted of the following
steps:
 A sharp reduction in government spending, especially on capital
formation development and social welfare.
 A programme of privatization of public sector enterprises,
ostensibly on efficiency grounds, but in reality for ideological
reasons and to meet fiscal deficit targets set by the Bank and the
Fund by raising revenue through sale of public sector assets at
unconscionably low prices.
 Accelerated liberalization of imports of both goods and capital
 Numerous tax and other concessions for both foreign and
domestic capital, to attract inflows of capital and stimulate
investment.
 A severe cutback in government subsidies for food, fertilizers and
power, accompanied by a rise in the costs of borrowing for
government resulting from financial deregulation leading to higher
interest rates.
 Active promotion of stock markets and speculation, accompanied
by discouragement of household saving in other forms of small
savings
 Deregulation of industry and gradual removal of protective
legislation for labour.

Globalization
The term "globalization" has gained wide and popular currency today.
Yet, there is often a lack of clarity on the precise meaning and definition
of the term, and of its implications. In the more euphoric versions,
globalization is seen as the wonderful culmination of a century of
glittering technological progress which has made the world a global
village, and has made it possible for people everywhere to communicate
with great ease across the globe. These versions cite the phenomenal
progress in such fields as biotechnology and information and

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communication technology to highlight the fact that a whole new range of

technological possibilities have emerged which could potentially enhance
human life spans and the quality of life for all. But they do not pause to
examine the track record of scientific and technological progress under
hitherto existing socioeconomic regimes, which have more often than not
led to both highly in equalizing and highly destructive uses of science
and technology. The more explicitly ideological versions of this genre see
globalization as the ultimate triumph of capitalism and as signifying "the
end of history". The reality and the lived experience of globalization of
the vast majority of people in the world call seriously into question the
euphoric versions, the strenuous efforts of electronic and print mass
media top portrary otherwise notwithstanding.
Globalization, as it is currently occurring, is best understood as a
hegemonic process led by the economically and militarily powerful G7
countries-USA, UK, Canada, France, Italy, Germany and Japan - and the
huge transnational corporation {TNCs or more popularly, multinational
corporation (MNCs} based in these countries. In a sense, globalization
has always been with us ever since the capitalist mode of production
took firm root in UK some centuries ago, and the ceaseless quest of
capital for profit across space and all sectors of productive and
unproductive activity emerged.

Self-Check Question
 Write a note on the rationale of Economic Reforms in India

Summary

India was faced with a serious balance of payments (BOP) crisis in 1990-
91, following a decade of expansionary policies, accompanied by both
indiscriminate commercial borrowing abroad and trade liberalization, and
in the immediate context of adverse international developments
especially with respect to the price of oil. Thanks to the same

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expansionary policies financed by large scale internal borrowing and

large budgetary deficits arising from an unwillingness to tax the rich to
finance increased government spending, India also ran into a fiscal
crisis, with government's revenues falling far short of expenditures. The
twin crisis of BOP and fiscal crunch was used by the minority
government of Narasimha Rao to push through a programme of
structural adjustment dictated by the world bank and the IMF.

Home Assignment

 Compare India’s economic reforms with that of other developing

countries of the world and state the reason for moderate growth of
indianeconomy since 1991.

Suggested Readings and References

 Registrar General and Census Commissioner, India, Census of India 2001:

 Provisional Population Totals, Paper 1 of 2001 (New Delhi:
 Government of India, 2001).
 http://finmin.nic.in/
 http://mines.nic.in/
 http://powermin.nic.in/
 Datt, Ruddar & Sundharam, K.P.M. (2005). "2". Indian Economy.
S.Chand. ISBN 81-219-0298-3.
 Sankaran, S (1994). "3". Indian Economy: Problems, Policies and
Development. Margham Publications.
 Kumar, Dharma (Ed.). "4". The Cambridge Economic History of India
(Volume 2).

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LESSON 14

IMPACT OF ECONOMIC REFORMS

Economic Reforms (India since 1991)

(Note: following article has been sourced from Hindu Business Line authored by Nirupam Bajpai. This
article gives a fair good idea about economic reforms in India and its impact.)

The reforms in the 1990s in the industrial, trade, and financial sectors,
among others, were much wider and deeper. As a consequence, they
have contributed more meaningfully in attaining higher rates of growth.
India has gone through the first decade of her reform process. Hence, an
assessment of what has been achieved so far and what remains on the
reform agenda is in order.

Four different governments were in office during the 1990s — the

Congress government which initiated the reforms in 1991, the United
Front coalition (1996-98) which continued the process, the BJP-led
coalition which took office in March 1998 and then again the BJP-led
National Democratic Alliance (NDA) in October 1999 till date. In short, it
seems that India's political system is more than ever in consensus about
the basic direction of reforms.

The new experience of successful coalition governments in India has

been ideal for democratic governance, balancing divergent views and
accommodating regional and sectoral interests more effectively. This has
imparted some degree of stability and consistency in economic
policymaking.

In broad terms, we are firmly of the view that the current decade is going
to be India's decade of development and that the country is on its way to
sustaining a period of high economic growth, say, 7-8 per cent per
annum.

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Since India's economic reforms were launched in 1991, the Indian

economy has sustained an annual average growth rate of over 6 per
cent. In 2003-04, GDP growth is expected to be around 7.5 per cent.

India's foreign exchange reserves have crossed $100 billion. The current
account deficit turned into a surplus over the last four years. This was
achieved through non-debt creating flows, so that India's external debt
has remained virtually static in nominal terms. The debt servicing and
debt GDP ratios have fallen sharply. In fact, India is now repaying foreign
debt ahead of schedule.

India is becoming a production base and an export hub for diverse

goods, from agricultural products to automobile components to high-end
services. Indian firms are now part of global production chains —
importing sub-assemblies, adding value to them and re-exporting them.

Taking advantage of its pool of high-quality scientific talent, international

corporations have established large R&D centres in India. All these
strengths have resulted in a greater integration of the Indian economy
with the world economy. Trade has risen from 21 per cent to 33 per cent
of India's GDP in a decade.

India's strong economic growth is succeeding in bringing people out of

poverty, nevertheless the country still has a long way to go before it can
eradicate poverty.

However, it increasingly appears that the ingredients of rapid poverty

eradication are falling into place. From roads to telecommunication, the
country is seeing the beginning of a qualitative change and growth in
infrastructure.

Since April 2003, India has been adding nearly 2 million mobile
connections every month. The enormous successes of India's IT
professionals and the new successes of IT-enabled services have been

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made possible by the fact that the data and voice carrying capacity in
India today has been enhanced dramatically.

India is meeting almost 70 per cent demand of the worldwide business

process outsourcing (BPO).

Operating through satellite links, Indian programmers are providing IT

support to US and European firms in areas ranging from software
development and maintenance, back-office operations, data transcription
and transmission, telemarketing, and other related areas.

In the last year or so, US and European firms in the health, insurance
and banking sectors, to mention a few, are also increasingly resorting to
the BPO route to cut their costs. In India, unlike in China and the
Philippines, BPO is sought after not just on cost considerations, but for
better quality as well. As far as BPO in India is concerned, firms go there
for cost, and stay there for quality.

The federal government has launched an ambitious project for a

highways network, which is linking the country's major metropolitan
centres and is providing improved connectivity to India's rural areas.
These roads can already be seen transforming the Indian economy.

Similarly, in terms of federal support for primary schools under the

`Sarva Siksha Abhiyan' (literacy for all) scheme, which was put in place
in November 2000 to attain universal primary literacy by the year 2010,
large sums of federal money is being invested in, among other things,
constructing new school buildings, upgrading facilities in existing
schools, recruiting and training teachers and revising syllabi.

Economic Indicators from 1991

The Indian economy has undergone substantial changes since the

introduction of economic reforms in 1991. These reforms were a
comprehensive effort consisting of three main components namely,

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liberalisation, privatisation and globalisation. They included various

measures like deregulating the markets and encouraging private
participation; trade liberalisation; dismantling the restrictions on domestic
and foreign investments; reforming the financial sector and the tax
system, etc. All such policy initiatives radically changed the economic
set-up of the country and integrated it with the rest of the world. Thus,
India was placed in a globally competitive position so as to fully utilise its
potentials and opportunities for rapid growth of the economy.

Net National Product (NNP) at factor cost (at 1993-94 prices) increased
from 0.5 per cent in 1991-92 to 6.3 per cent in 1999-2000. It increased to
8.8 percent in 2003-04 at 1999-2000 prices. Similarly, per capita NNP
increased from -1.5 per cent to 4.4 percent and then to 7.0 percent
during the same period. Gross National Product (GNP) at factor cost (at
1993-94 prices) increased from 1.1 per cent in 1991-92 to 6.2 percent in
1999-2000. It increased to 8.7 percent in 2003-04 at 1999-2000 prices.
Gross Domestic Product (GDP) at factor cost ( at 1999-2000 prices) has
increased from 4.4 percent in 2000-01 to 7.5 per cent in 2004-05.

The industrial sector has been going through a process of restructuring

and consolidation after liberalisation. The industries have responded to
the reforms through mergers and acquisitions, adoption of cost cutting
measures, foreign collaboration, technology upgradation and outward
orientation in sectors such as cement, steel, aluminium,
pharmaceuticals, and automobiles. Industrial growth increased sharply in
the first five years after the reforms, but then slowed to an annual rate of
4.5 percent in the next five years. From low growth rate of 2.7 per cent in
2001-02, the industry sector grew at a rate of 7.1 per cent in 2002-03
and further to 9.8 per cent in 2004-05.

There has been steady and continuous rise in supply of money in the
economy since initiation of reforms. Reserve Money(Mo) has increased
from Rs.99,505 crores in 1991-92 to Rs.573066 crores (Provisional) in
2005-06. Narrow money (M1) has increased from Rs.114406 crores to

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Rs. 825245 crores (Provisional), while, broad money (M3) has increased
from Rs.317049 crores to Rs.2729535 crores (Provisional) during the
same period.

Low and volatile growth rates in Indian agriculture and allied sectors was
reflected in the average annual growth rate of value added in the sector
declining from 4.7 per cent during the Eighth Plan (1992-1997) to 2.1 per
cent during the Ninth Plan (1997-2002). From negative growth rate of
-7.2 percent in 2002-03, the agriculture sector grew at a rate of 10.0 per
cent in 2003-04 and at a rate of 6.0 per cent in 2005-06.

As a proportion of GDP, the share of exports, which had grown from 5.8
per cent in 1990-91 to 12.2 per cent in 2004-05, grew further to 13.1 per
cent in 2005-06. The corresponding rise in imports was from 8.8 per cent
in 1990-91 to 17.1 per cent in 2004-05 and further to 19.5 per cent in
2005-06. Thus, trade deficit as a proportion of GDP, which had declined
from 3.0 per cent in 1990-91 to 2.1 per cent in 2002-03, widened to 4.9
per cent in 2004-05 and further to 6.4 per cent in 2005-06.

Performance of the Indian economy on the inflation front, with price

stability as one of the prime objectives of the reform process has been
satisfactory, particularly after the mid 1990s. The annual average
inflation rate based on Wholesale Price Index (WPI) was 10.6 per cent
between 1991-96, which fell down to 5.1 per cent in the period 1996-
2001 and then to 4.7 per cent in 2001-06.

Annual GDP Growth Rates Over Quinquennia (1993-94 Base)

Table 1
1971-75 3.40
1976-80 2.87
1981-85 5.05
1986-90 7.01
1991-95 6.43
1996-00 5.87
Source:- Macroscan , Business Line, Various Issues

TABLE 2

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Annual Sectoral GDP Growth Rates, per cent

PERIOD Primary Secondary Tertiary
1986-90 5.72 8.66 8.83
1991-95 3.77 8.04 6.40
1996-00 1.95 4.99 7.20
Source:- Macroscan , Business Line, Various Issues
 
TABLE 3
Share of Gross Domestic Capital Formation (GDCF) as per cent of
Gross Domestic Product (GDP) Quinquennial Average
 
Year GDCF as per cent GDP
1970-75 16.14
1975-80 19.12
1980-85 19.76
1985-90 22.70
1990-95 24.03
1995-00 24.05
Source:- 'Economic Survey, 2000-2001

TABLE 4
Annual Rate of Growth of Total Employment(%)
  Rural Urban
1983 to 1987-88 1.36 2.77
1987-88 to 1993-94 2.03  3.39
1993-94 to 1999-00 0.58 2.55

TABLE 5
Head Count Poverty Ratio (%)
NSS Round Period Rural Ratio Urban  Ratio
32 Jul77-June78 50.60 40.50
38 Jan 83-Dec 83 45.31 35.65
43 Jul87-Jun88 39.60 35.65
46 Jul 90 - June 91 36.43 32.76
50 Jul93-Jun94 38.74 30.03
51 Jul94-Jun95 38.0 33.5
52 Jul 95-june96 38.3 28.0
53 Jan 97-Dec 97 38.5 30.0

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54 Jan 98-Jan 98 45.3 N.A

Source:-Up to 46th Round the figures are taken from a World Bank document. The 50"'
round figures are from Abhijit Sen who uses the same method. From the 51 st to 54th
round the rural figures are from S.P. Gupta of the Planning Commission and the urban
figures are from G. Datt of the World Bank.

Self-Check Question
 Comment on the growth of Indian economy since 1991

Economic Development: Impact of Economic Reforms

Physical infrastructure
Development of infrastructure was completely in the hands of the public
sector and was plagued by corruption, bureaucratic inefficiencies, urban-
bias and an inability to scale investment.
India's low spending on power, construction, transportation,
telecommunications and real estate, at $31 billion or 6% of GDP in 2002
had prevented India from sustaining higher growth rates. This had
prompted the government to partially open up infrastructure to the private
sector allowing foreign investment which has helped in a sustained
growth rate of close to 9% for the past six quarters. India holds second
position in the world in roadways' construction, more than twice that of
China. As of 2005 the electricity production was at 661.6 billion kWh with
oil production standing at 785,000 bbl/day. India's prime import partners
are : China 8.7%, US 6%, Germany 4.6%, Singapore 4.6%, Australia 4%
as of 2006 CIA Fact Book. As of 15 January 2007, there were 2.10
million broadband lines in India.

Services
India is fifteenth in services output. It provides employment to 23% of
work force, and it is growing fast, growth rate 7.5% in 1991–2000 up
from 4.5% in 1951–80. It has the largest share in the GDP, accounting
for 53.8% in 2005 up from 15% in 1950. Business services (information

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technology, information technology enabled services, business process

outsourcing) are among the fastest growing sectors contributing to one
third of the total output of services in 2000. The growth in the IT sector is
attributed to increased specialisation, availability of a large pool of low
cost, but highly skilled, educated and fluent English-speaking workers.
On the supply side and on the demand side, increased demand from
foreign consumers interested in India's service exports or those looking
to outsource their operations. India's IT industry, despite contributing
significantly to its balance of payments, accounted for only about 1% of
the total GDP or 1/50th of the total services.

Banking and finance

The Indian money market is classified into: the organised sector

(comprising private, public and foreign owned commercial banks and
cooperative banks, together known as scheduled banks); and the
unorganized sector (comprising individual or family owned indigenous
bankers or money lenders and non-banking financial companies
(NBFCs)). The unorganized sector and microcredit are still preferred
over traditional banks in rural and sub-urban areas, especially for non-
productive purposes, like ceremonies and short duration loans.
Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by
six others in 1980, and made it mandatory for banks to provide 40% of
their net credit to priority sectors like agriculture, small-scale industry,
retail trade, small businesses, etc. to ensure that the banks fulfill their
social and developmental goals. Since then, the number of bank
branches has increased from 10,120 in 1969 to 98,910 in 2003 and the
population covered by a branch decreased from 63,800 to 15,000 during
the same period. The total deposits increased 32.6 times between 1971
to 1991 compared to 7 times between 1951 to 1971. Despite an increase
of rural branches, from 1,860 or 22% of the total number of branches in
1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages are
covered by a scheduled bank.

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Since liberalisation, the government has approved significant banking

reforms. While some of these relate to nationalised banks (like
encouraging mergers, reducing government interference and increasing
profitability and competitiveness), other reforms have opened up the
banking and insurance sectors to private and foreign players

Self-Check Question
 Give a detailed account of indian economy after 1991.

Summary

Since India's economic reforms were launched in 1991, the Indian

economy has sustained an annual average growth rate of over 6 per
cent. In 2003-04, GDP growth is expected to be around 7.5 per cent.

India's foreign exchange reserves have crossed $100 billion. The current
account deficit turned into a surplus over the last four years. This was
achieved through non-debt creating flows, so that India's external debt
has remained virtually static in nominal terms. The debt servicing and
debt GDP ratios have fallen sharply. In fact, India is now repaying foreign
debt ahead of schedule.

India is becoming a production base and an export hub for diverse

goods, from agricultural products to automobile components to high-end
services. Indian firms are now part of global production chains —
importing sub-assemblies, adding value to them and re-exporting them.

Home Assignment
 Write a detailed note on the impact of economic reforms on indian
society in general.

Suggested Readings and References:

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 Registrar General and Census Commissioner, India, Census of

India 2001:
 Provisional Population Totals, Paper 1 of 2001 (New Delhi:
 Government of India, 2001).
 http://finmin.nic.in/
 http://mines.nic.in/
 http://powermin.nic.in/
 Datt, Ruddar & Sundharam, K.P.M. (2005). "2". Indian Economy.
S.Chand. ISBN 81-219-0298-3.
 Sankaran, S (1994). "3". Indian Economy: Problems, Policies and
Development. Margham Publications.
 Kumar, Dharma (Ed.). "4". The Cambridge Economic History of
India (Volume 2).

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LESSON 15
INFRASTRUCTURE SECTOR

Introduction

Infrastructure refers to all those services and facilities that constitute the
basic support system of an economy. It is the foundation on which the
day to day functioning of all the economic activities of a country depends.
It consists of the transportation network in the form of railways,
roadways, ports and civil aviation; the tele-communication system as well
as the power sector. All such utilities, through their backward and
forward linkages, provide an enabling environment for facilitating the
growth of a nation.

Recognizing the critical importance of the infrastructure sector, the

Government of India has accorded it a high priority. Accordingly, both the
Central and the State Governments have been working in tandem to
upgrade the Indian infrastructural set up to meet the international norms
and standards. But, investment in existing and new infrastructure
projects involves high risks, low returns, huge capital, high incremental
capital/ output ratio, long payback periods as well as superior
technology.

Hence, in order to bring in adequate resources (physical, financial and

technical) for setting up of a sound and efficient infrastructural base, the
Government has entered into the 'Public Private Partnership (PPP)'
programme. This programme involves long-term detailed contracts
between the Government and the private players, spelling out the rights
and obligations of both the contracting parties. Such public-private
partnership encourages better risk sharing, accountability, cost recovery
and management of infrastructure. Through such initiatives, the
Government is moving away from its traditional role of 'provider of
services' to that of a 'facilitator and regulator'.

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As a facilitator, the Government has been engaged in instilling

confidence in the private sector by creating an appropriate policy
framework. The policies envisage several incentives and schemes to
attract massive capital into the infrastructure industry. At the same time,
the Government continues to fulfill its social obligations through proper
checks and balances in the form of a transparent regulatory system. The
role for regulation is to protect the interests of consumers and foster an
institutional set up, which helps in delivering infrastructure services of
high quality at low prices.

The setting up of a 'Committee on Infrastructure (CoI)' has been a

major step in this direction. It has been constituted with the objectives
of:-

1. Initiating policies that ensure time-bound creation of world class

infrastructure

2. Drawing a priority list of projects aimed at augmenting and

modernizing the infrastructure capacity
3. Developing structures that maximize the role of public-private
partnerships in the field of infrastructure
4. Monitoring progress of the infrastructure projects to ensure that
established targets are realized;
5. Identifying measures to refine project formulation, project planning
and project management processes in line with international best
practices; etc.

The Committee has estimated the investment requirements for some of

the key infrastructure sectors, to be achieved by 2012. These include:-
Rs.2,20,000 crore for modernization and upgradation of highways;
Rs.40,000 crore for civil aviation; Rs.50,000 crore for ports; and
Rs.3,00,000 crore for railways.

Thus, India's enormous unmet infrastructure needs, combined with the

public private partnership approach, offer an unprecedented investment

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opportunity for the private players. These opportunities, having the

potential of attractive returns, exist in all the infrastructural sectors, both
at the national and State level.

The Indian Government has been fully aware of the link between
infrastructure facilities and progress of a nation, right from the beginning
of the planning era. Since then, infrastructure development has been
perceived as a priority sector. Initially, investment in this industry was
considered to be a monopoly of the public sector. This is because of the
large financial outlays, long gestation periods, uncertain returns and
associated externalities involved in the infrastructural projects.

But, with liberalisation and globalisation of the country, the infrastructure

sector has been progressively opened up for private investments, both
domestic and foreign. The reason being, as the economy grows at a
faster rate, adequate and efficient infrastructural set up becomes
indispensable for sustaining its competitiveness on the world platform.
Also, the increasing industrial activity and rising population puts
tremendous pressure on the existing infrastructural facilities.

Given this, the Government of India has recognized that while public
investment in infrastructure would continue to increase, private
participation needs to expand significantly in order to address the
growing infrastructure deficit in the country. Hence, it has been
encouraging private sector investment in almost all infrastructure units
through the 'public private partnership (PPP)' programme.

Public Private Partnership (PPP) means a project based on a contract or

concession agreement, between a Government or statutory entity on one
side and a private sector company on the other, for providing an
infrastructure service. Under it, the role of public sector gets redefined as
one of facilitator and enabler, while the private partner plays the role of
financier, builder as well as operator of the service or facility. The former
provides stable governance, financial support as well as assurance
against social, environmental and political risks. The latter brings along

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operational efficiencies, innovative technologies, managerial

effectiveness and access to additional finances. Thus, PPPs combine
the skills, expertise and experience of both the public and private sectors
so as to meet the international standards.

Some of the earliest examples of PPP in India are:- the Great Indian
Peninsular Railway Company operating between Bombay and Thane
(1853); the Bombay Tramway Company running tramway services in
Bombay (1874); as well as the power generation and distribution
companies in Bombay and Kolkata in the early 20th century. The
Government is actively promoting the PPP mode for developing and
operating high-priority public utilities and infrastructure like railways,
shipping, power, aviation, telecom, etc. According to certain studies, the
largest number of PPP projects are in the roads and bridges sector,
followed by ports, particularly greenfield ports. Also, during the Eleventh
Five Year Plan, it is estimated that an investment of Rs.14,50,000 crore
or about US$320 billion would be required in the infrastructure sector
and this can be achieved only through a combination of public
investment, public-private-partnerships (PPPs) as well as exclusive
private investments.

In order to accelerate the implementation of PPP projects and providing

them long-term finance, the Government has initiated the 'Viability Gap
Funding (VGF) scheme' and established 'India Infrastructure Finance
Company Limited (IIFCL)'. The VGF scheme is a special facility created
to support those infrastructure projects, which are economically
justifiable but not viable commercially in the immediate future. It involves
upfront grant assistance of up to 20% of the project cost for the PPP
projects. While, IIFCL is the special purpose vehicle (SPV) created for
rendering financial assistance through:-

 Direct lending to eligible projects

 Refinance to banks and financial institutions and

 Any other method approved by Government of India.

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Thus, it eases the asset-liability mismatch and sets a benchmark for

market borrowings by other organizations.

Such a framework provided by the Government, provides numerous

opportunities for investment into the various infrastructural sectors of the
country, which have immense untapped potential for further growth and
expansion.

The Indian Government has been fully aware of the link between
infrastructure facilities and progress of a nation, right from the beginning
of the planning era. Since then, infrastructure development has been
perceived as a priority sector. Initially, investment in this industry was
considered to be a monopoly of the public sector. This is because of the
large financial outlays, long gestation periods, uncertain returns and
associated externalities involved in the infrastructural projects.

But, with liberalisation and globalisation of the country, the infrastructure

sector has been progressively opened up for private investments, both
domestic and foreign. The reason being, as the economy grows at a
faster rate, adequate and efficient infrastructural set up becomes
indispensable for sustaining its competitiveness on the world platform.
Also, the increasing industrial activity and rising population puts
tremendous pressure on the existing infrastructural facilities.

Given this, the Government of India has recognized that while public
investment in infrastructure would continue to increase, private
participation needs to expand significantly in order to address the
growing infrastructure deficit in the country. Hence, it has been
encouraging private sector investment in almost all infrastructure units
through the 'public private partnership (PPP)' programme.

Public Private Partnership (PPP) means a project based on a contract or

concession agreement, between a Government or statutory entity on one
side and a private sector company on the other, for providing an
infrastructure service. Under it, the role of public sector gets redefined as

204
ABM 502 Unit V

one of facilitator and enabler, while the private partner plays the role of
financier, builder as well as operator of the service or facility. The former
provides stable governance, financial support as well as assurance
against social, environmental and political risks. The latter brings along
operational efficiencies, innovative technologies, managerial
effectiveness and access to additional finances. Thus, PPPs combine
the skills, expertise and experience of both the public and private sectors
so as to meet the international standards.

Some of the earliest examples of PPP in India are:- the Great Indian
Peninsular Railway Company operating between Bombay and Thane
(1853); the Bombay Tramway Company running tramway services in
Bombay (1874); as well as the power generation and distribution
companies in Bombay and Kolkata in the early 20th century. The
Government is actively promoting the PPP mode for developing and
operating high-priority public utilities and infrastructure like railways,
shipping, power, aviation, telecom, etc. According to certain studies, the
largest number of PPP projects are in the roads and bridges sector,
followed by ports, particularly greenfield ports. Also, during the Eleventh
Five Year Plan, it is estimated that an investment of Rs.14,50,000 crore
or about US$320 billion would be required in the infrastructure sector
and this can be achieved only through a combination of public
investment, public-private-partnerships (PPPs) as well as exclusive
private investments.

In order to accelerate the implementation of PPP projects and providing

them long-term finance, the Government has initiated the 'Viability Gap
Funding (VGF) scheme' and established 'India Infrastructure Finance
Company Limited (IIFCL)'. The VGF scheme is a special facility created
to support those infrastructure projects, which are economically
justifiable but not viable commercially in the immediate future. It involves
upfront grant assistance of up to 20% of the project cost for the PPP
projects. While, IIFCL is the special purpose vehicle (SPV) created for
rendering financial assistance through:-

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ABM 502 Unit V

 Direct lending to eligible projects

 Refinance to banks and financial institutions and

 Any other method approved by Government of India.

Thus, it eases the asset-liability mismatch and sets a benchmark for

market borrowings by other organizations.

Such a framework provided by the Government, provides numerous

opportunities for investment into the various infrastructural sectors of the
country, which have immense untapped potential for further growth and
expansion.

Roadways

Roads are considered to be one of the most cost effective and preferred
modes of transportation. It is easily available and accessible to all the
sections of the society. It facilitates the movement of both men and
materials from one place to another within a country. It helps to bring
about national integration as well as provide for country's overall
socioeconomic development. It is a key infrastructural unit which
provides linkages to other modes of transportation like railways,
shipping, airways, etc. Hence, an efficient and well-established road
network is inevitable for promoting trade and commerce as well as
meeting the needs of a sound transportation system in the country.

India has one of the largest road networks in the world, aggregating to
3.34 million kilometers and consists of Expressways, National Highways,
State Highways, Major District Roads, Other District Roads and Village
Roads. The National Highways (NHs), with a total length of 66,590 km,
serve as the arterial network of the country. They connect the State
capitals, ports and big cities. They comprise only about 2 per cent of the
total length of roads, but carry about 40 per cent of the total traffic. Out of
their total length, 32 per cent is single lane/intermediate lane; 56 per cent
is 2-lane standard; and the balance of 12 per cent is 4-lane standard or

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more. While, the State Highways (1,28,000 km) are the main roads of the
State. They connect the capital and major cities of the States. The major
district roads has a total length of 4,70,000 km and facilitate the linkage
between the main roads and rural roads. The other district and rural
roads, account for about 26,50,000 km, provide villages accessibility to
other roads in order to meet their social needs, such as transporting
agriculture produce to nearby markets.

In India, the Department of Road Transport and Highways, under the

Ministry of Shipping, Road Transport and Highways, is the main authority
concerned with the development of roadways. It has the overall
responsibility for planning, construction and development of National
highways in the country. While, all roads (other than NHs) fall within the
jurisdiction of the respective State Governments and local bodies. The
department is entrusted with the task of formulation of broad policies
relating to regulation of road transport in the country, besides making
arrangements for movement of vehicular traffic with the neighbouring
countries. It has two wings to carry out its various functions, namely:-

 Roads wing - deals with the matters relating to development and

management of National Highways, in accordance with the
provisions of National Highways Act, 1956. Its other main
functions are:-

i. Extending technical and financial support to State

Governments for the development of State roads as well as
the roads of inter-State connectivity and economic
importance
ii. Evolving standard specifications for roads and bridges in
the country
iii. Serving as a repository of technical knowledge on roads
and bridges etc.
 Transport wing - deals with the matters relating to road transport
system in the country. It is mainly responsible for administration of

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Motor Vehicles Act, 1988 and Road Transport Corporations

Act, 1950; taxation of motor vehicles and their compulsory
insurance; and promotion of transport co-operatives in the field of
motor transport. Its other functions are:-
i. Evolving road safety standards in the form of a National
Road Safety Policy as well as preparing and implementing
the Annual Road Safety Plan
ii. Collecting, compiling and analysing road accident statistics
iii. Taking steps for developing a road safety culture in the
country by involving the members of public and organising
various awareness campaigns etc.

However, the Ministry is carrying out the operations of National

Highways through three agencies, that is, State Public Works
Department (PWD), Border Roads Organisation (BRO) and National
Highways Authority of India (NHAI). The execution of works and day-
to-day management of most National highways in States are looked after
by the respective PWDs. While, BRO is primarily responsible for
construction and maintenance of roads in the border areas, classified as
General Staff (GS) roads. It has not only linked the border areas of the
north and northeast with the rest of the country, but has also developed
the road infrastructure in Bihar, Maharashtra, Karnataka, Rajasthan,
Andhra Pradesh, the Andaman and Nicobar Islands, Uttaranchal and
Chhattisgarh. There are about 49,214 km of National Highways whose
development and maintenance are presently being carried out by the
respective PWDs and the BRO.

The National Highways Authority of India (NHAI), constituted under

the National Highways Authority of India Act, is the major agency for
implementing the important projects on National highways in the country.
Traditionally, these road/ national highway projects were fully financed
and controlled by the Government. But the increasing pressure of traffic
and the resulting demand for road infrastructure had made it imperative
to attract private investments into the sector. Hence, National Highways

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Act (NH Act) 1956 was amended in June 1995 and private persons
were allowed to invest in the NH projects; levy, collect and retain fee
from users; etc. The beginning of significant private participation in
roadways was made with the launching of India's largest road project
called as the 'National Highways Development Project (NHDP)'. The
NHDP is a massive project taken up for the improvement and
development of National Highways in the country and is being
implemented in a phased manner by the NHAI.

The NHDP consists of the following components:-

 NHDP Phase I & II - envisage four/six laning of about 14,471 km

of National Highways, at a total estimated cost of Rs.65,000 crore
(at 2004 prices). These two phases majorly comprise of Golden
Quadrilateral (GQ) and North-South and East-West Corridors. The
Golden Quadrilateral (GQ-5,846 km) connects the four major
cities of Delhi, Mumbai, Chennai and Kolkata. While, the North-
South and East-West Corridors (NS-EW-7,300 km) connect:-

i. Srinagar in the North to Kanyakumari in the South,

including spur from Salem to Kochi and
ii. Silchar in the East to Porbandar in the West.

The NHDP also includes 'Port Connectivity Project' comprising a

length of 380 km for improvement of roads connecting 12 major
ports in the country and other projects involving a length of 945
km.

 NHDP Phase III - envisage four / six laning of 11,113 km of

National Highways on Build, Operate and Transfer (BOT) basis. It
consists of stretching the National Highways carrying high volume
of traffic; connecting State capitals with the NHDP Phases I and II
network; as well as providing connectivity to places of economic,
commercial and tourist importance. It involves four laning of 4035
km at an estimated cost of Rs.22,207 crore under NHDP Phase-

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IIIA and preparation of the Detailed Project Reports (DPRs) for the
balance length (7,078 km) under Phase-IIIB.

 NHDP Phase IV- envisage two laning of 20,000 km at an

indicative cost of Rs.25,000 crore. It aims to provide balanced and
equitable distribution of the improved/widened highways network
throughout the country.
 NHDP Phase V - envisage six laning of 6,500 km of national
highways on Build, Operate and Transfer (BOT) basis. It
comprises of 5,700 km of GQ and balance 800 km of certain other
high density stretches, at a cost of Rs.41,210 crore.
 NHDP Phase VI - envisage construction of 1,000 km of
expressways with full access control on new alignments at a cost
of Rs.16,680 crore. This would be beneficial for several growing
urban centres of India, particularly those located within a few
hundred kilometers of each other.
 NHDP Phase VII - envisage other Highway Projects at an
indicative cost of Rs.15,000 crore. It includes construction and
development of ring roads of major towns, bypasses,service
roads, flyovers, etc. on National Highways, with a view to fully
utilise the highway capacity as well as enhance safety and
efficiency.

Also, the 'Special Accelerated Road Development Programme for

North Eastern region (SARDP-NE)' has been announced as a part of
NHDP Phase -VII programme. The Department of Road Transport and
Highways has been paying special attention to the development of
National highways in the North-Eastern (NE) region of the country.
SARDP-NE aims to improve road connectivity to all the State capitals,
district headquarters and remote places in the NE region. It envisages
two / four laning of about 3228 km of National Highways; two laning /
improvement of about 2500 km of State roads; and roads of strategic
importance with a length of 1888 km. This will ensure connectivity of 85

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district headquarters in the eight North-Eastern States to the National

Highways /State roads. The programme is to be implemented in two
phases:-

 Phase A - consists of 1110 km of National Highways and 200 km

of State / General Staff (GS) roads at an estimated cost of
Rs.4618 crore. Out of 1110 km of National Highways, 603 km is to
be executed on BOT (annuity) basis by the NHAI. However, the
Government has accorded approval for the implementation of
Phase A and the construction work on 454 km length has been
commenced. The likely target date of completion is March 2009.

 Phase B - involves improvement of 2118 km of National

Highways and 4188 km of State / General Staff (GS) roads. The
Government has accorded approval for the preparation of
Detailed Project Reports (DPRs) for roads.

Besides, the Government is actively undertaking several other initiatives

to improve and strengthen the network of national highways, State
highways, roads in major districts and rural areas. It is also making all
efforts to encourage greater private sector participation in the roads
sector so as to develop well-planned road network in the country

Self-Check Question

 Write a note on the state of roadways in the country

 Gather state-wise data relating to NHDP.

Aviation

India's aviation industry is the second largest in the world. It has been
witnessing a boom due to exponential growth in the domestic passenger
carriage, cargo movement and international air traffic. Airlines have

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carried nearly 32.172 million domestic passengers during the year 2006,
as against 22.788 million during 2005, thus showing a growth of 41 per
cent. India's new international status as IT and manufacturing hub has
led to the growth of international air traffic.

The aviation sector can be subdivided into the airport and airline
industry. Sound airport infrastructure is a vital component of the overall
transportation network and contribute directly to a country's international
competitiveness. It also encourages flow of foreign capital into the
economy. At present, India has more than 455 airports/civil enclaves and
airstrips. These airports handled about 73.33 million passengers during
2005-06, registering an increase of 24 per cent over 2004-05 which is
the highest ever growth achieved.

As far as the airlines are concerned, there are a number of companies,

both public and private sector, which are providing passenger transport
and cargo handling services in the country. In the public sector, there are
Air India, Indian Airlines, Air India Charters Limited (Air India Express)
and Alliance Air. In the private sector, there are 7 scheduled airlines
(passenger), namely, Jet Airways, Sahara Airlines, Deccan Aviation,
Spice Jet, Kingfisher Airlines, Paramount Airways. There is also a
cargo private scheduled airline called as the Blue Dart Aviation Ltd.
Besides, there are 46 companies, holding non-scheduled air transport
operators permit.

Further, in order to increase international connectivity and facilitate

foreign travel for passengers, India has entered into 'Air Service
Agreements (ASA)' with around 100 countries. These bilateral
agreements provide the basic legal framework for operation of air
services between the two contracting parties. The number of flights each
country can operate and the destinations that could be served are also
specified in these agreements.

The Ministry of Civil Aviation is the nodal authority responsible for the
formulation of national policies and programmes for development and

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regulation of the civil aviation industry in the country. Its functions

also extend to overseeing airport facilities, air traffic services and
carriage of passengers and goods by air. Two separate organizations
under the Ministry monitor and regulate the sector:-

1. Directorate General of Civil Aviation (DGCA) is the regulatory

body responsible for regulation of air transport services
to/from/within India and for the enforcement of civil air regulations,
air safety and airworthiness standards.  The regulations are in the
form of the Aircraft Act,1934; the Aircraft Rules,1937; the Civil
Aviation Requirements; and the Aeronautical Information
Circulars.  Its other functions include:-
 Registration of civil aircraft;
 Formulation of standards of airworthiness for civil aircraft
registered in India and grant of certificates to such aircrafts;
 Licensing of pilots, aircraft maintenance engineers; flight
engineers; and air traffic controllers;
 Maintaining a check on the proficiency of flight crew, and
also of other operational personnel such as flight
dispatchers and cabin crew;
 Conducting investigation into accidents/incidents and
taking accident prevention measures;
 Carrying out amendments to the Aircraft Act, the Aircraft
rules and the Civil Aviation requirements for complying with
the requirements of International Civil Aviation Organisation
(ICAO);
 Granting approval to aircraft maintenance, repair and
manufacturing organizations;
 Rendering advice to the Government on matters relating to
air transport including bilateral air services agreements; on
ICAO matters and on all technical matters relating to civil
aviation; etc.
2. Bureau of Civil Aviation Security (BCAS) is the regulator for
civil aviation security in the country. It's main responsibility is to lay

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down standards and measures in respect of security of civil flights

at International and domestic airports in India. This also includes
planning and co-ordination of all aviation security related activities,
operational emergencies and crisis management. It is the
"Appropriate authority" to ensure development, maintenance,
updation and implementation of 'National Aviation Security
Programme' for India and fulfill all international obligations in this
context. The bureau has four 'Bomb Detection and Disposal
Squads (BDDS)' positioned at the international airports of Delhi,
Mumbai, Kolkata and Chennai with latest sophisticated equipment
like Robot, Real time Viewing System (RTVS), Electronic
Stethoscope, Explosive Detector, etc.

The Ministry of Civil Aviation has the following public sector

undertakings/companies/autonomous bodies under its administrative
control:-

1. Air India Limited :- is a company incorporated under the

Companies Act, 1956 and has the functions and responsibilities
of providing safe, efficient, adequate, economical and properly
coordinated international air transport services. It has four wholly
owned subsidiaries, namely, Hotel Corporation of India Limited,
Air India Charters Limited, Air India Engineering Services Ltd and
Air India Air Transport Services Limited.

2. Indian Airlines Limited:- is also incorporated under the

Companies Act and has been set up with the main objective of
providing safe, efficient, adequate, economical and properly
coordinated air transport services. It is the major domestic air
carrier of the country.
3. Airports Authority of India (AAI) :- was constituted in 1995 for
creating, upgrading, maintaining and managing civil aviation
infrastructure, both on the ground and air space of the country. It
aims at providing world class airport services for efficient

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operation of air transport in the country. It manages 127 airports,

which include 15 international airports (12 AAI and 3 civil
enclaves); 8 customs and 78 domestic airports and 25 civil
enclaves at defence airfields. It controls the entire Indian airspace
of 2.8 million square nautical miles.
4. Pawan Hans Helicopters Limited (PHHL) :- was established in
1985 as the country's national helicopter company for providing
helicopter support services to the Oil Sector; operate
scheduled/non-scheduled helicopter services in inaccessible
areas and difficult terrains; as well as provide charters for
promotion of travel and tourism. It has a well balanced fleet of 33
helicopters  consisting of Robinson  Bell 206L4, Bell 407, Dauphin
SA 365N & AS 365N3 and Mi-172s, which are most appropriate
for multi-farious jobs. It is the only aviation company in India being
awarded ISO 9001:2000 certification for its entire gamut of
activities.
5. Indira Gandhi Rashtriya Uran Akademi :- was established by
the Government with the objective of improving the flying training
standards in civil aviation and to impart line oriented flying training
of international standards. It has been set up at Fursatganj in Rai
Bareilly District of Uttar Pradesh. It is equipped with modern and
sophisticated trainer aircraft, flight simulators, computer based
training system, runway with modern navigational and landing
aids and its own airspace. It is manned by highly qualified flying
and ground instructors, with long experience in the field of aviation
and flying training.

With liberalisation of the Indian economy and its global integration,

continuous upgradation and modernisation of the aviation sector
has become critically important. Accordingly, the current policy
focus of the Government is on modernisation of the existing
airports as well as the construction of new ones. For instance, the
international airports in Delhi and Mumbai are being restructured
through public-private partnership. Two greenfield airport

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projects at Bangalore and Hyderabad are being implemented on

Build Own Operate Transfer (BOOT) basis. The AAI has decided
to develop and modernise 35 non-metro airports to world class
standards. Also, the bilateral arrangements are being
strengthened for ensuring better international connectivity.

Self-Check Question

 Write a note on the state of Aviation Sector of Indian economy.

Railways

Railways are the main artery of inland transport in an economy. They are
an energy-efficient mode of transportation, ideally suitable for large scale
movement of manpower, bulk commodities and for long distance travel.
They are the lifeline of the country and hold great importance in its socio-
economic development. A well-established railway system brings
together people from the farthest corners of the country and makes
possible the conduct of business, sightseeing, pilgrimage and education.
It improves the quality of life and thus helps to accelerate the growth of
industry and agriculture. Indian Railway (IR) is the largest rail network in
Asia as well as the world’s second largest under a single management. It
has been a key component of India's transport sector for over 150 years.
It is the world's largest employer with over 1.4 million employees. It plays
an important role in not only meeting the infrastructural needs of the
country, but also in binding together the dispersed areas and promoting
national integration. During national emergency, IRs have been in the
forefront in rushing relief material to disaster stricken regions.

From a very modest beginning in 1853, when the first train steamed off
from Mumbai to Thane (distance of 34 Km), Indian Railways have grown
into a vast network of 7,133 stations spread over a route-length of

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63,465 Km. They own a fleet of 7,910 locomotives; 42,441 passenger

service vehicles; 5,822 other coaching vehicles and 2,22,379 wagons (as
on 31 March 2005). IR is a multi-gauge system comprising of:- broad
gauge (1.676 mm); metre gauge (1.000 mm); and narrow gauge (762
mm and 610 mm). Their track length is 89,771 km; 15,684 km and 3,350
km respectively. While, the gauge wise route length is 47,749 km; 12,
662 km and 3,054 km respectively. The total running track length is
84,260 km, of which 67,932 km is broad gauge; 13,271 km is metre
gauge; and 3,057 km is narrow gauge. About 28 per cent of route-
kilometre, 39 per cent of running track and 40 per cent of total track have
been electrified.

Freight and passenger are the two main segments of the Indian
Railways. The freight segment brings about two-thirds of revenues, while
the rest comes from the passenger traffic. Within the freight segment,
bulk traffic accounts for nearly 95 percent, of which more than 44 percent
is contributed by coal. In the process of rationalizing passenger and
freight tariff structures since 2002-03, the relative index of AC First Class
has been reduced from 1400 to 1150 and AC 2-Tier from 720 to 650.
There has been a reduction of about 18 per cent in the fares of AC First
Class and 10 per cent in that of AC 2-Tier. The number of commodities
in goods tariff has been reduced from 4,000 commodities to 80 main
commodity groups in 2005-06, and further to 27 groups in 2006-07. The
total number of classes for charging freight has been reduced from 59 to
17.

The Indian Railway network is controlled by its 16 zonal offices. These

are:- Northern Railway, New Delhi; North Central Railway, Allahabad;
North Western Railway, Jaipur; Northeast Frontier Railway, Maligaon
(Guwahati); North Eastern Railway, Gorakhpur; Central Railway,
Mumbai CST; South Central Railway, Secunderabad; East Central
Railway, Hajipur; South East Central Railway, Bilaspur; West Central
Railway, Jabalpur; Eastern Railway, Kolkata; East Coast Railway,
Bhubaneswar; Southern Railway, Chennai; South Western Railway,

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Hubli; South Eastern Railway, Kolkata; and Western Railway, Mumbai

(Church Gate).

In India, the Ministry of Railways is the nodal authority for the

development and maintenance of rail transport. It is actively engaged in
formulation of various policies and looking after the overall functioning of
the railway system. In order to deal with different aspects of operations of
IRs, it has set up several public sector undertakings:-

 Rail India Technical and Economic Services Limited (RITES)

 Indian Railway Construction (IRCON) International Limited

 Indian Railway Finance Corporation Limited (IRFC)
 Container Corporation of India Limited (CONCOR)
 Konkan Railway Corporation Limited (KRCL)
 Indian Railway Catering and Tourism Corporation Limited
(IRCTC)
 Railtel Corporation of India Limited (RAILTEL)
 Mumbai Railway Vikas Corporation Limited (MRVC Ltd.)
 Rail Vikas Nigam Limited (RVNL)

Besides, the 'Research, Design and Standards Organisation (RDSO)'

at Lucknow is the research and development (R&D) wing of the Indian
Railways. It functions as a consultant to the Ministry in technical matters.
It also provides consultancy to other organisations connected with
railway manufacture and design. There is also a 'Centre for Railway
Information System (CRIS)' , which has been set up in order to design
and implement various railway computerisation projects. Along with
these, there are six production units which are engaged in manufacturing
rolling stocks, wheels, axles and other ancillary components of railways,
namely, Chittaranjan Loco Works; Diesel-Loco Modernisation
Works; Diesel Locomotive Works; Integral Coach Factory; Rail
Coach Factory; and Rail Wheel Factory.

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Rapid progress in industrial and agricultural sectors of the country has

generated a higher level of demand for rail transport, particularly in core
sectors like coal, iron and steel ores, petroleum products and essential
commodities such as food grains, fertilisers, cement, sugar, salt, edible
oils, etc. Accordingly, IR has made several attempts to absorb the
advances in railway technology and has become self-sufficient in
production of many rail equipments like rolling stocks. It is in the process
of inducting new designs of fuel-efficient locomotives of higher horse
power, high-speed coaches and modern bogies for freight traffic. Modern
signalling like panel inter-locking; route relay inter-locking; centralised
traffic control; automatic signalling; and multi-aspect colour light
signalling are also being introduced.

In order to strengthen, modernise and expand such a network, the

Government of India seeks to attract private capital as well as State
funding in several categories of rail projects, like projects for port
connectivity, gauge conversion, connectivity to remote/backward areas,
laying new lines, electrification, suburban transportation, etc. Besides,
the Government has introduced Rail-based mass rapid transit system
(MRTS) projects in the metropolitan cities of Delhi, Mumbai, Chennai,
Bangalore, Hyderabad and Kolkata. The project aims to provide reliable,
safe and pollution-free rail journey for the commuters of the cities. It
ensures fastest means of transportation, saves time and reduces the
incidence of accidents. This project has made considerable progress,
especially the performance of Delhi Metro Rail project is notable. The
phase I of the Delhi metro is fully operational and it is extending its
network outside the capital city.

The private sector participation in developing rail infrastructure in India is

gradually widening, both in scale and scope. For instance, Pipavav
Railway Corporation Ltd. (PRCL) is the first infrastructure model of
public-private partnership in rail transportation. It is the joint venture
company of Indian Railways and the Gujarat Pipavav Port Ltd (GPPL),
set up to construct, maintain and operate 271 km long broad gauge

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railway line, connecting Port of Pipavav to Surendranagar Junction of

Western Railway in the State of Gujarat.

Moreover, the budgetary support to the railways has been increasing

from year to year. As per the railway budget of 2007-08, the railways
have shown a record breaking performance during the first nine months
of the year 2006-07. The passenger earnings have increased by 14 per
cent and other coaching earnings by 48 per cent during the same period.
A historic increase of 17 per cent has been registered in both freight
earnings and gross traffic earnings. Gross Traffic Revenues, projected at
Rs 63,120 crore, are 16% higher than the previous year and 5.5% higher
than the budget estimates.

The Ministry has undertaken several reform measures and initiatives to

improve traffic condition, safety as well as introduce high technology, that
is, to develop a world-class rail infrastructure in the country. Accordingly,
in the budget, a new profile for railways have been designed for 11th
five-year plan. This include:-

 Target of 1,100 Million Tonnes (MT) freight loading and 840 crore
passengers in the terminal year of 11th Plan.

 Focus on doubling transport capacity and reducing unit cost of

transportation by increasing volumes.
 Short-term strategy- investing in low cost high return
projects for eliminating bottlenecks and ensuring intensive
asset utilization;
 Mid and long-term strategy – twin pronged approach of
network expansion and modernization as well as technical
upgradation;
 Public-private partnership projects to play a more important
role.

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 Construction of Eastern and Western Dedicated Freight Corridors,

at a cost of Rs 30,000 crore, to commence from 2007-08 and its
completion during the 11th plan.

 Pre-feasibility surveys for East-West, East-South, North-South

and South-South Corridors.
 Most of the metre-gauge lines to be converted into broad-gauge
by the end of this five-year plan.
 High speed Passenger Corridors to be constructed to run trains at
more than 300 km/hr speed.
 Efforts to provide air-conditioned suburban trains in Chennai,
Kolkata and Mumbai and escalators at important stations.
 Production of rolling stock to be doubled compared with previous
plan.
 Increase production of high-horse power and energy efficient
locos.

Other initiatives taken for improvement in freight business are:-

 Target for freight loading kept at 785 Million Tonnes (MT) in 2007-
08

 Mission 200 MT - Railways target higher share of 200 MT in

transportation of cement and steel by 2011-12
 Mission 100 MT - container traffic target of 100 MT by 2011-12.
 Planning for triple-stack container trains on diesel route and
double-stack container trains on electrified route.
 Upgradation of freight terminals handling more than 15 rakes per
month.
 22.9 tonnes and 25 tonnes axle-load freight trains to run on more
routes.
 Wagon manufacturers to be encouraged to design wagons with
higher payload and new technology.
 Zonal Railway to engage independent marketing agencies for
exploring further possibilities in freight business.

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While, the initiatives in passenger business involves:-

 800 more coaches to be attached in popular trains.

 Plan to provide cushioned seats in unreserved second class

coaches.
 Increase in unreserved second class coaches from four to six in
every new train.
 Facility for reservation of lower berths for senior citizens and
women above 45 years travelling alone.
 Increase in provision of special coaches for physically challenged
passengers.
 More convenient, comfortable and high capacity new design
passenger coaches to be manufactured.
 300 more stations to be developed as modern stations.
 Year 2007 declared 'Cleanliness Year’ - Special campaign to
ensure cleanliness in station complexes, passenger trains, railway
lines, waiting rooms, etc.

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Power
Power is an essential requirement for all facets of life and has been
recognized as a basic human need. It is a critical infrastructure on which
the socio-economic development of a country depends. The availability
of reliable and quality power at competitive rates is very crucial to sustain
growth of all the sectors of the economy, that is, primary, secondary and
tertiary. This helps to make domestic markets globally competitive and
thus improve the quality of life of the people.

Under the Constitution of India, electricity is a concurrent subject at entry

number 38 in the List III of the Seventh Schedule. India is the world's
sixth largest energy consumer accounting for about 3.5% of the world's
total annual energy consumption. The thermal, hydro and nuclear energy
are the major sources of generation of electricity in India. The All India
installed power generation capacity has been 1,32,110.21 MW (as on
April 30 , 2007), consisting of 85,575.84 MW (thermal); 34,653.77 MW
(hydro); 4,120 MW (nuclear); and 7760.60 MW (renewable energy
sources).

Regulatory Framework

In India, the Ministry of Power is the nodal authority for the overall
development of electrical energy in the country. It is concerned with
perspective planning; policy formulation; processing of projects for
investment decision; monitoring of the implementation of power projects;
training and manpower development; as well as the administration and
enactment of legislation in regard to power generation, transmission and
distribution. It is responsible for the administration of the Electricity Act,
2003, the Energy Conservation Act , 2001 and to undertake such
amendments to these Acts, as may be necessary from time to time, in
conformity with the Government's policy objectives. The Ministry also
provides research, development and technical assistance relating to
hydro-electric and thermal power transmission and distribution systems

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in the States/UTs as well as deals with all the matters concerning energy
conservation.

The Ministry has several undertakings/ organisations operating under it.

They may be classified as follows:-

 Statutory Bodies, which include:-

 Central Electricity Authority (CEA) - is an attached office

of the Ministry and assist it in all technical matters. CEA is
responsible for overall planning and technical coordination
as well as supervision of standard programmes of entire
electricity sector of the country. It specifies the technical
and safety requirements for construction, operation and
maintenance of electrical standards and electrical lines. It is
also involved in formulating the 'National Electricity Plan' in
accordance with the 'National Electricity Policy', once in
five years.
 Central Electricity Regulatory Commission (CERC) -
has been constituted in order to:- (i) regulate the tariff of
generating companies owned or controlled by the Central
Government; (ii) regulate the tariff of generating companies
other than those owned or controlled by the Central
Government, if such generating companies enter into or
otherwise have a composite scheme for generation and
sale of electricity in more than one State; (iii) regulate the
inter-State transmission of energy including tariff of the
transmission utilities; (iv) grant licences for inter-State
transmission and trading; and (v) advise the Central
Government in formulation of National electricity policy and
tariff policy.
 State Electricity Regulatory Commissions (SERCs) -
have been constituted in order to:- (i) determine the tariff
for generation, supply, transmission and wheeling of

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electricity, whole sale, bulk or retail sale within the State; (ii)
issue licences for intra-State transmission, distribution and
trading; and (iii) promote generation of electricity from
renewal sources of energy etc.
 Appellate Tribunal for Electricity (APTEL) - has been
constituted for the purpose of hearing cases against the
orders of the Regulatory Commissions and the Adjudicating
officer.
 Damodar Valley Corporation (DVC) - is the first multi-
purpose river valley project of the Government, set up for
the unified development of Damodar Valley region spread
over the States of West Bengal and Jharkhand. Its
objectives are:- (i) flood control and irrigation; (ii) water
supply and drainage; (iii) generation, transmission and
distribution of electrical energy; (iv) afforestation and
control of soil erosion; and (v) promotion of industrial,
economic and general well-being of the people.
 Bhakra Beas Management Board (BBMB) - has been
constituted for the administration, maintenance and
operation of Bhakra Nangal Project. It manages the
facilities created for harnessing the waters impounded at
Bhakra and Pong in addition to those diverted at Pandoh
through the BSL Water Conductor System. It has also been
assigned the responsibility of delivering water and power to
the beneficiary States in accordance with their due/ entitled
shares.
 Public Sector Undertakings, which include:-
 Power Grid Corporation of India Ltd. (POWERGRID) - is
the Central transmission utility of India which possess one
of the largest transmission network in the world. It has been
set up with the mandate 'to establish and operate Regional
and National Power Grids to facilitate transfer of power
within and across the regions with reliability, security and

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economy on sound commercial principles'. It is responsible

for all the existing and future transmission projects in the
Central sector.
 National Thermal Power Corporation (NTPC) - is the
largest thermal power generating company of India and has
been identified as one of the Navratnas. It has been set up
with the objective of planning, promoting and organizing an
integrated development of thermal power in the country.
 National Hydro-electric Power Corporation (NHPC) -
has been set up in order to harness the vast hydro, tidal
and wind potential of the country to produce cheap/
pollution-free and inexhaustible power. It covers all aspects
such as investigation, planning, designs, construction,
operation and maintenance of hydroelectric, tidal and wind
power projects.
 North-Eastern Electric Power Corporation (NEEPCO) -
has been set up with the objective of developing the large
power potential of the North Eastern (NE) region of the
country by installing hydro and thermal power plants so as
to ensure optimum utilisation of commissioned generation
projects. It aims to plan, design, operate and maintain
power stations in the NE region.
 Rural Electrification Corporation (REC) - has been set
up with the objective of financing and promoting rural
electrification projects all over the country. The projects
cover electrification of villages, including tribal villages and
Dalit Bastis, energisation of pump sets, provision of power
for small, agro-based and rural industries, lighting of rural
households and street lighting. REC provides financial
assistance to State Electricity Boards, State Government
Departments and Rural Electric Cooperatives.
 Power Finance Corporation (PFC) - function as the prime
development financial institution dedicated to the growth

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and overall development of the power sector. It provides

financial assistance/ services for power projects in the form
of project term loan, lease financing, direct discounting of
bills, short term loan, consultancy services, etc.

 Autonomous Bodies, which include:-

 Central Power Research Institute (CPRI) - serve as a

National Laboratory for undertaking applied research in
electric power engineering, besides functioning as an
independent National Testing and Certification Authority for
electrical equipment and components so as to ensure
reliability and develop new products.
 National Power Training Institute (NPTI) - function as the
National Apex body for the human resource development
of the power sector personnel in India. Its headquarter is
located in Faridabad (Haryana). It operates on all India
basis through its four Regional Power Training Institutes
located at Neyveli (Tamil Nadu), Durgapur (West Bengal),
Badarpur (New Delhi) and Nagpur (Maharashtra). They are
fully equipped with the latest state-of-the-art training
infrastructure and having expert faculties with long years of
professional and teaching background.
 Bureau of Energy Efficiency (BEE) - has been set up to
develop policies and strategies within the overall framework
of Energy Conservation Act 2001. It aims to promote
energy saving measures and in turn reduce energy
intensity (i.e. energy consumed per unit product/services,
practice and procedure) of Indian economy.

 Joint Venture Corporations, which include:-

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 Satluj Jal Vidyut Nigam Limited (SJVN) - is a joint

venture of the Government of India and the Government of
Himachal Pradesh, set up with the objective to plan,
promote, organize and execute hydro-electric power
projects in the Satluj river basin in the Himachal Pradesh.
 Tehri Hydro Development Corporation (THDC) - is a
joint venture of Government of India and Government of
Uttar Pradesh, set up with the objective to plan, promote,
organize, execute, operate and maintain hydro power
projects in Bhagirathi- Bhilangna Valley in Uttar Pradesh.

Policy Initiatives and Opportunities

The power sector is among the first sectors to be opened up for private
sector investment. Though the initial impetus was on investment in
power generation projects, subsequently, it has also been allowed in
distribution and transmission projects. The Ministry has initiated several
reform measures to attract private investment in order to enhance power
generation capacity and promote energy efficiency in the country. For
instance, the 'Electricity Act 2003' has been enacted to provide an
enabling framework for the overall development of the power sector. It is
an Act for consolidating the laws relating to generation, transmission,
distribution, trading and use of electricity; taking measures conducive for
development of electricity industry; promoting competition therein; and
supplying electricity to all areas. The electricity Act also aims to
rationalise electricity tariffs, promote efficient and environmentally benign
policies, constitute CEA and regulatory commissions, provide for
stringent penalties in case of theft of electricity, etc.

Under the Electricity Act 2003, the Central Government has prepared
the 'National Electricity Policy' in consultation with State Governments
and CEA. The policy has been announced for laying down the guidelines
for accelerated development of the power sector and supply of electricity
to all areas, keeping in view the availability of energy resources,

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technology, economics of generation and energy security issues. It aims

at achieving the following objectives:-

 Access to electricity, that is, make it available for all households in

next five years;

 Demand to be fully met by 2012 and energy shortages to be

overcome;
 Supply of reliable and quality power of specified standards in an
efficient manner and at reasonable rates;
 Per capita availability of electricity to be increased to over 1000
units by 2012;
 Minimum lifeline consumption of 1 unit/household/day as a merit
good by year 2012;
 Protection of consumers' interests, etc.

The Ministry of Power has set an ambitious mission of 'power for all by
2012', which is a comprehensive blueprint for power sector development.
The mission requires that installed generation capacity should be at least
2, 00,000 MW by 2012. It aims to provide reliable, sufficient and quality
power supply to all areas at an optimum cost as well as enhance
commercial viability of power industry. To be able to achieve such
objectives, following strategies are being adopted like:-

 Power generation strategy with focus on low cost generation,

optimisation of capacity utilization, controlling the input cost,
optimisation of fuel mix, technology upgradation and utilization of
non-conventional energy sources;

 Transmission strategy with focus on development of National Grid

including InterState connections, technology upgradation and
optimization of transmission cost;
 Distribution strategy with focus on system upgradation, loss
reduction, theft control, consumer service orientation, quality

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power supply commercialization, decentralized distributed

generation and supply for rural areas;
 Financing strategy to generate resources for required growth of
the power sector; etc.

Besides, the Ministry envisages establishing an integrated 'National

Power Grid' in the country in a phased manner by the year 2012. The
first phase has been completed in 2002, wherein regional grids were
mainly connected by HVDC back to back stations and inter regional
power transfer capacity of 5050 MW has been established. The
implementation of second phase has already commenced and with the
commissioning of Talcher Kolar HVDC bipole, Raipur Rourkela 400 kV
D/C transmission system along with series compensation and second
back to back station at Gajuwaka, inter regional power transfer capacity
has grown to 9450 MW. It has created a synchronous grid from
Arunachal Pradesh to Goa spanning across a length of 2500 km,
encompassing an area of 16 lakh sq km with an installed capacity of over
50,000 MW. The third phase includes strengthening of national grid to
Southern region through 765 Kv AC lines/ HVDC lines as well as linking
North Eastern region with rest of national grid through high capacity
transmission system. Under it, the cumulative inter regional power
transfer capacity is expected to rise more than 30,000 MW by 2012.

Moreover, rural electrification is considered vital programme for the

socio-economic development of rural areas. Its objectives are to trigger
economic growth and generate employment by providing electricity as an
input for productive uses in agriculture and rural industries as well as
improve the quality of life of the rural people by supplying electricity for
lighting of homes, shops, community centres and public places in all
villages.

The Government of India, from time to time, has been launching several
programmes for electrification of rural areas in the country. For instance,
the 'Rural Electrification Supply Technology (REST) Mission' has

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been launched with a view to accelerate electrification of all villages and

households progressively by year 2012 through local renewable energy
sources, decentralized technologies and conventional grid connection. It
aims to provide affordable and reliable power supply to rural areas and
effect implementation through distributed generation schemes, wherever
feasible.

Besides, a scheme called the 'Rajiv Gandhi Grameen Vidhyutikaran

Yojana (RGGVY) for Rural Electricity Infrastructure and Household
Electrification' has been introduced in April, 2005 for achieving the
National Common Minimum Programme objectives of providing access
to electricity to all rural households over a period of four years. The Rural
Electrification Corporation (REC) is the nodal agency for implementation
of the scheme. Under this scheme, 90% Capital Subsidy will be provided
for rural electrification infrastructure projects through:-

 Creation of Rural Electricity Distribution Backbone (REDB) with

one 33/11 kV (or 66/11 kV) substation in every block appropriately
linked to the State Transmission system.

 Creation of Village Electricity Infrastructure (VEI) for electrification

of all unelectrified villages/habitations and provision of distribution
transformer(s) of appropriate capactity in every village/habitation.
 Decentralized Distributed Generation (DDG) and Supply System
form conventional sources for villages/habitations, where grid
supply is not cost effective and where Ministry of Non-
Conventional Energy Sources would not be providing electricity
through their programme(s).

This scheme inter alia provides for financial assistance for electrification
of all unelectrified Below Poverty Line (BPL) households with 100%
capital subsidy.

Maritime Transport

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India is the 20th largest maritime country in the world. It's strategic
location of a long coastline that flanks important global shipping routes,
makes it a major maritime nation. The maritime sector in India comprises
of ports, shipping, shipbuilding and ship repair as well as inland water
transport systems. About 95% of the country’s trade by volume and 70%
by value is moved through maritime transport. With India’s current share
in global merchandise trade at around 0.80%, a sound maritime
infrastructure plays an important role in the pace, structure and pattern of
our economic development.

Department of Shipping (DOS), under the Ministry of Shipping, Road

Transport & Highways, is the nodal organisation entrusted with the
responsibility of formulating and implementing policies and programmes
on these sectors. Vision of Department of Shipping is to take Indian
maritime sector to commanding heights in order to serve India's trade
and security interests in an efficient and economical manner. It has been
taking several measures for upgrading and modernizing the maritime
infrastructure in the country so as to meet the international standards.
One such important step has been the formulated of the 'National
Maritime Development Programme (NMDP)' comprising a total of 387
projects which cover the entire gamut of activities in ports, merchant
shipping and inland water transport. The objective of the programme is to
facilitate focused and accelerated investment in specific infrastructure
including port infrastructure, tonnage acquisition and institutional
capacity building. It envisages a total investment of Rs.100,339 crores
out of which Rs.55,804 crores is for major ports and the rest for shipping
and inland water transport sectors.

The programme aims at:-

 Creating world-class infrastructure in ports.

 Encouraging Indian tonnage to meet Indian sea/water

transportation requirements.

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 Enhancing share of inland water transportation of goods in

domestic trade.
 Promoting multi modal transportation of goods to facilitate trade.
 Protecting marine environment in partnership with other
concerned agencies.

With the above aims and objectives in view, a development plan upto
2011-12, has been formulated after assessing the national traffic
demand; additional capacity required to meet this demand; as well as the
investment required and the funding pattern. Thus, through this
programme, the Department of Shipping, seeks to fortify Indian
maritime/water transportation system including ports, shipping and inland
waterways in order to serve the economic and strategic needs to the
country in an improved manner

Self-Check Question
 Give a brief account of Railways in the country.
 Write a note on the plight of power sector in the economy.

Summary

Recognizing the critical importance of the infrastructure sector, the

Government of India has accorded it a high priority. Accordingly, both the
Central and the State Governments have been working in tandem to
upgrade the Indian infrastructural set up to meet the international norms
and standards. But, investment in existing and new infrastructure
projects involves high risks, low returns, huge capital, high incremental
capital/ output ratio, long payback periods as well as superior
technology.

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Hence, in order to bring in adequate resources (physical, financial and

technical) for setting up of a sound and efficient infrastructural base, the
Government has entered into the 'Public Private Partnership (PPP)'
programme. This programme involves long-term detailed contracts
between the Government and the private players, spelling out the rights
and obligations of both the contracting parties. Such public-private
partnership encourages better risk sharing, accountability, cost recovery
and management of infrastructure. Through such initiatives, the
Government is moving away from its traditional role of 'provider of
services' to that of a 'facilitator and regulator'.

Home Assignment

 Elucidate the importance of infrastructure sector in the process of

economic development of a country.
 Explain in detail various reasons for underperformance of
infrastructure sector in the economy despite several policy
measures adopted by the government of india

Suggested readings and references

 Registrar General and Census Commissioner, India, Census of

India 2001:
 Provisional Population Totals, Paper 1 of 2001 (New Delhi:
 Government of India, 2001).
 http://finmin.nic.in/
 http://mines.nic.in/
 http://powermin.nic.in/

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 Datt, Ruddar & Sundharam, K.P.M. (2005). "2". Indian Economy.

S.Chand. ISBN 81-219-0298-3.
 Sankaran, S (1994). "3". Indian Economy: Problems, Policies and
Development. Margham Publications.
 Kumar, Dharma (Ed.). "4". The Cambridge Economic History of
India (Volume 2).

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