April 21, 2006

China India infrastructure comparison

This passage below is taken from the India Today magazine where Essar Shipping's Shashi Ruia gave a speech. Pay close attention to the infrastructure figures cited.
Issues & Solutions

Shashi Ruia,
Essar Shipping

Good Morning ladies and gentlemen.
When Prabhu asked me to speak on issues and solutions on infrastructure, my thoughts went back to 1969 when I first started and that was the start of our group, Essar Group. Building break-water in the Madras Port and how that small act determined that core competence and in many ways our destiny to be a core and infrastructure company. Today standing before you I feel that if our country had put infrastructure development as its major priority then you would not be comparing our selves with China at every major economic discussion and meet. I am going to say a few words to set the tone for today’s deliberations. And I am sure that the eminent panel of speakers from government and industry will provide you with interesting and insightful views on the issues that confront us in this vital sector. In his budget speech on February 28 last year Finance Minister, Chidambaram said the most glaring deficit in India is the infrastructure deficit. He said the government will spend 150 billion dollars over the next five years to develop world class infrastructure covering power, telecommunications, airports, sea ports and roads, that was last year. What has happened since then and one more budget later it is both reassuring and disappointing but before I come to that let me take you through what must be one of the most offered projected slides on the Indian economy. India shining aptly describes………………… but I remember in the 90s reference is being made to the roaring tiger that would be India I mean just prowling or going to be roar one day and when will that day be, and when will that year come. Let me take you through some reality checks. At current GDP growth rates we cannot get close to the GDP of the US or China in 40 years. And how did they do it in the 50s Eisenhower first build the infrastructure, ports, rail, roads, highways, airports, communications and growth followed. And China’s success clearly shows that 40 years later the premise is still valid. In the US and China growth followed infrastructure, while in India infrastructure is chasing growth, making even the current growth difficult to sustain. Infrastructure should grow at at-least 15 per cent if you want to achieve 10 per cent GDP growth over the next five years. If that happen if there is sufficient public private sector partnership and sufficient foreign investment we should see that be. Let us look at the ground reality in the few sectors. India today faces a peak power shortage of 12 per cent. Government of India estimates that over 6 lakh crore of investment would be needed in the next ten years to build an additional capacity of 100 thousand MW. Company in India lose 10 per cent of the capacity utilization due to power cuts and over 60 per cent of the companies have diesel generating sets as a supplement. There is a huge imperative to get this sector on the right tact. Taking from our Chinese friend, when she said earlier, we have to think big in the sector they have the three gorgeous project generating or will generate 25,000 MW in one site. We have to learn a lesson from them because we can also have our own Teesta which has the capacity or capability to generate 18,000 MW in one site instead this project needs commitment from both the people and the government. Nehruji gave us the Bhakra Nangal, we hope that Manmohan Singhji will give us a Teesta. Take railways, in 55 years since independence the total kilometers of Indian railways has increased from 53,000 to 63,000. Road network increased by 600,000 kilometers in 15 years since 91 while the total rail route increased by a mere 1100 kilometers, China’s freight traffic 1700 billion tone kilometers in 2005 while India’s 381 billion. Most of the statistics between India and China and I know this from my steel background is a combination of 1:3 or 1:5. Their production and consumption are in some ways always three times larger or five times larger than us. So if we need to catch up with China we have some statistics which are readily available on where or how do we need to get there. Take ports, 95 per cent of international trade by volume if carried by sea transport, in India with the coast line of 7500 kilometers we have only 12 major ports which handle 75 per cent of port traffics. Not only do we need more ports, that is obvious we need much better rail and road connectivity. We also need to enhance cargo handling capability of our ports. Only 15 per cent of the India’s traffic is container-end and the capability to manage even this is very limited. In 2004 the total cargo at Indian ports was 395 billion tones and that is expected to double by 2009. there is a definite case here for rapid privatization and modernization and a word of caution in the process of privatization and modernization there should not be institutions like the Maritime Boards of each State getting into the act because our own experience in Gujarat with the local Maritime Boards has been to say the least, we have saddled with charges for barges that don’t exist. If they are being termed or they have been made out to be revenue and tax earners when they should have been provided service and earnings. So there has to be a distinction between the role of the Maritime Boards of each state and the requirement of collecting these taxes. Infrastructure lags terribly behind demand privatization of two airports in Mumbai and Delhi with much fanfare and heart burn is not sufficient we need 50 more with both domestic and international traffic growing rapidly. With domestic air traffic growing at 34 per cent annually and increase in business and tourist visitors we need to address this issue with urgency. The telecom story is the real success story. We have a little part in it because we are in collaboration with Hutch, we hold 33 per cent of the company and were among the first to launch services in the telecom sectors way back in 1995. India is a world’s fastest growing mobile communication in the market and today the hello does not require a lightening call to be booked through what was referred to as the telephone department. It is also heartening to note that the Indian consumer enjoys the lowest tariff in the world today. Tele-density has improved from 3.6 in 2002 to 11. 33 in December 2005 and the explosion never seem to stop. We at Hutch are adding one million customers a month if there is a lesson in it for the other sectors, I think there is a lesson to be learnt from the telecom the boom in the telecom and that is unless we create value we cannot attract investment. The business has to be able to enhance value to attract both attention and investment. The other story waiting to be told to us is the one of roads and highways the conversion from ‘Yojana to a Haqiqat’ is fast and commendable. National Highway Authority has done an outstanding job linking the golden quadrilateral and started the North and South and East-West highways. Only support required is legislation or ordinance to acquire land for faster implementation. I think there should be an act of Parliament where there is a public commitment than the peoples’ commitment to have better highways that will even drive the process faster. The concept of the SEZ to exploit the country’s potential as a brain power as well as manufacturing super hub for power has to be implemented with greater vigour and single mindedness. This is one of the terrific vehicles to promote domestic as well as foreign investment. While the intent is there hopefully action on the ground is slightly slow and uncompromising. I believe that the state governments have to buy, they deserve a buy into the concept and actively participate instead of looking at the loss of revenue, the loss of taxes which is totally on the basis of the investment that have not yet arrived it is a theory and there was an article this morning criticizing the SEZ and the government would lose 90,000 crore because the SEZ will come. But this is an opportunity loss. It is not real loss. If you don’t have the SEZ and you don’t have the investment there is not loss of tax. So we have to figure out what our priorities are. The compulsion of coalition politics that make different parties pull in different directions on the reform agenda are a dampener on the overall reform programmes. Reform knows only one face, the face of progress that delivers a better standard of living to all of us. The earlier presentation by our Chinese guest, she kept emphasizing that the entire growth of Shanghai was people driven. People are the centre and the core of all development. We should not have a situation where tail wags the dog in course in the government. But all is not pessimistic, we will succeed despite ourselves is what one said to me the other day on the flight.

15 years back Manmohan Singhji began a process that freed the economy in more ways than one. He free the economic growth from government and politicians and if today all of us agree to one thing it is that will continue to grow whichever government comes to power that is the most significant and fundamental truth.

The private sector has to play an even more important role and the government has to provide greatest stimulus.

Let me sum up by suggesting five key actions, on the infrastructure front that will help accelerate our growth to double digits, funding of infrastructure projects at low interest rates, taking the SEZ act to the next logical step by providing support to the development of green field sites quickly and economically, power sector reforms to be further accelerated, market determine pricing of utilities put in place, private sector and foreign direct investments need to be further increased.

It is easy for industry to right prescriptions for the well being of the patient but I know how difficult it is for the government to balance pressures on the economic and political front. As you know I have spent a majority of my earlier years working in the government offices and mind you not as an employee, on behalf of industry. I can reiterate our commitment to compress 15 years to 5 we can build it if we can make our own way.

Thank you.


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