Column : Lets learn from Chinas $157bn infra push

Written by K Vaidya Nathan | K Vaidya Nathan | Updated: Sep 15 2012, 08:04am hrs
The Chinese government is embarking on an ambitious RMB 1 trillion ($157 billion) infrastructure investment programme in an effort to energise its sluggish economy. This was announced by the National Development and Reform Commission (NDRC), which is equivalent to the Planning Commission in India with the added responsibility of implementation of the plans. NDRC approved 25 urban rail projects, 13 highway construction projects, seven waterway projects, apart from other miscellaneous infrastructure projects.

This is a step in the right direction and an example for India because our infrastructure is appallingly retrograde and is bursting on its seams. Spending on infrastructure for India has the potential to offer one of the best returns on public investment. It can give a real fillip to the Indian economy not only after the infrastructure projects are implemented but even during implementation, as infrastructure construction generates economic activity. So, even when elections seem to be looming large, it does make sense to spend on infrastructure. Once complete, they provide a wide range of benefits from a more mobile workforce and better access to export markets to making India a more attractive place for direct investment.

NDRC has quite appropriately kept the focus on railways, highways and waterways. Infrastructure projects like highways are fundamental to industrys ability to do business day in, day out. For most corporations, the highway network is vital to accessing raw material, markets and the wider transport network. For business executives, better roads mean enhanced expediency. Theres little point, for example, in building a shiny new airport in Bangalore at Devanahalli if the roads are so congested that it takes you more time to get to the airport from the city, than the flight time from Bangalore to Delhi. Similarly, there could be a better option for air travellers for sectors like Bangalore-Chennai if the distance of 300-odd km can be covered in less than four hours by state-of-the-art railways. Likewise, a well-developed waterway can help commuters go from north Mumbai to south Mumbai in 30 minutes and would save at least two-thirds of travel time for most Mumbaikars. Apart from convenience in travelling within and across cities, freight transportation for businesses would become more attractive and cost effective.

A more efficient transportation infrastructure system will reduce our dependence on oil, saving the nation and the aam aadmi time and money. Traffic congestion on our roads results in crores of litres of diesel and petrol wasted per year, and results in losses for all of us in terms of wasted fuel and time. Most of our airports do not have state-of-the-art air traffic technology to operate multiple runways. As a result, during peak hours, a lot of flights circle overhead awaiting clearance to land, causing fuel wastage and delays. Investment in more efficient air traffic control systems would save lakhs of litres of jet fuel a year, translating into lower costs for consumers. Quite clearly, infrastructure investments do have very attractive pay-offs.

Well-designed infrastructure investments have long-term economic benefits and create jobs in the short run. Both economic activity and job creation through infrastructure investment would be very timely given the impending elections in 18 months or earlier. Our large middle-class would benefit considerably from this investment through both creation of middle-class jobs and by lowering transportation costs for our households. Moreover, there is strong demand by the public and businesses for substantial transportation infrastructure capacity.

We can expect large private sector productivity gains from public infrastructure investments, in many cases with higher returns than private capital investment. Well-designed infrastructure investments for a country like ours can raise economic growth, productivity and land values, while also providing significant positive spill-overs to areas such as economic development, energy efficiency, public health and industrial growth. In order for India to become one of the worlds top economic superpowers, we need to modernise our infrastructure and keep it up-to-date at levels of the developed economies at least, even if we dont better them.

Investing wisely in infrastructure is critically important and a large part of that has to come from the government and public sector. That said, the investment requirement is so much that the government cannot make it without the help of the private sector. For that to happen, the government needs to facilitate private financing for public infrastructure. For example, there is currently very little direct private investment in our nations highway and transit systems due to the current method of funding infrastructure, which lacks effective mechanisms to attract and repay direct private investment in these types of infrastructure projects. Removing financing and implementation bottlenecks would accelerate infrastructure investment from the private sector.

Infrastructure is one issue where parties across the political spectrum agree that we need more, not less. It would be very difficult for any political party, including the Left, to take a stance against infrastructure investments. So, in that sense, inaction by the current government is absurd and embarrassing, especially since funding from supra-nationals is easily available and would be a reasonable course of action. If ever there should have been a policy so obviously sensible as to attract bipartisan support from the Left parties to the Right-winged BJP, more money for infrastructure was it. Right now, when it comes to partisan politics, sensibilitys got nothing to do with it.

The author, formerly with JPMorgan Chase, is CEO, Quantum Phinance