(Sample Materials) Economic Survey & Government’s Plan, Programme & Policies - "Energy, Infrastructure and Communications"

Contents of the Chapter:

• Introduction
• Transport Sectors
• Overview of Performance
• Telecommunication
• Energy
• USOF
• Power
• Urban Infrastructure
• Petroleum
• Challenges and Outlook

Introduction

The Twelfth Five Year Plan lays special emphasis on development of the infrastructure sector including energy, as the availability of quality infrastructure is important not only for sustaining high growth but also ensuring that the growth is inclusive. The total investment in the infrastructure sector during the Twelfth Five Year Plan, estimated at Rs. 56.3 lakh crore (approx. US$1trillion), will be nearly double that made during the Eleventh Five Year Plan. This step up in investment will be feasible primarily because of enlarged private-sector participation that is envisaged. Unbundling of infrastructure projects, public private partnerships (PPP), and more transparent regulatory mechanisms have induced private investors to increase their participation in infrastructure sectors. Their share in infrastructure investment increased from 22 per cent in the Tenth Five Year Plan to 38 per cent in the Eleventh Plan and is expected to be about 48 per cent during the Twelfth Five Year Plan. Yet, more than half of the resources required for infrastructure would need to come from the public sector, from the government, and the parastatals. This would require not only the creation of the fiscal space but also use of a rational pricing policy. Further, scaling up private-sector participation on a sustainable basis will require redefining the contours of their participation for the development of infrastructure sector in a transparent and objective manner with a comprehensive regulatory mechanism in place. This chapter summarizes recent developments in the infrastructure sector, particularly the energy scenario in India, and the challenges and opportunities in the context of the targets and milestones envisaged in the Twelfth Five Year Plan.

OVERVIEW OF PERFORMANCE

Infrastructure projects take a long time to plan and implement. Delays in the execution of projects not only lead to shortfalls in achieving targets but widen the availability gaps. Time overruns in the implementation of projects continue to be one of the main reasons for underachievement in many infrastructure sectors.

ENERGY

During the Eleventh Five Year Plan, nearly 55,000 MW of new generation capacity was created, yet there continued to be an overall energy deficit of 8.7 per cent and peak shortage of 9.0 per cent. Resources currently allocated to energy supply are not sufficient for narrowing the gap between energy needs and energy availability. Indeed, this may widen as the economy moves to a higher growth trajectory. India's success in resolving energy bottlenecks therefore remains one of the key challenges in achieving the projected growth outcomes. Further, India's excessive reliance on imported crude oil makes it imperative to have an optimal energy mix that will allow it to achieve its long-run goal of sustainable development.

Reserves and potential for energy Generation

The potential for energy generation depends upon the country's natural resource endowments and the technology to harness them. India has both non-renewable reserves (coal, lignite, petroleum, and natural gas) and renewable energy sources (hydro, wind, solar, biomass, and cogeneration bagasse). As on March 2011, India's estimated coal reserves were about 286 billion tonnes, lignite 41 billion tonnes, crude oil 757 MT, and natural gas 1241 billion cubic metres (BCM). Estimated hydro potential (above 25 MW) is about 145 gigawatts (GW). The total potential for renewable power generation from various sources other than large hydro projects was 89,760 MW. The estimated reserves of non-renewable and the potential from renewable energy resources change with the research and development of new reserves and the pace of their exploration.

Energy production

The trend in production of the primary sources of conventional energy such as coal, lignite, crude petroleum, natural gas, and electricity shows that in last four decades, i.e. from 1970-1 to 2010-11, the compound annual growth rate (CAGR) of production of coal, lignite, crude petroleum, natural gas, and electricity (hydro and nuclear) generation was 5.0 per cent, 6.1 per cent, 4.3 per cent, 9.1 per cent, and 4.0 per cent respectively. In terms of energy equivalent of all the primary energy sources in 2010-11, the share of coal and lignite, electricity (hydro and nuclear), and natural gas was 52 per cent, 28 per cent, and 11 per cent respectively.

Consumption Pattern of Conventional energy

Trends in consumption of energy from conventional sources in India show that during the last four decades, i.e from 1970-1 to 2010-11, consumption of coal, lignite, crude oil in terms of refinery throughput, and electricity (thermal, hydro, and nuclear) increased at a CAGR of 5.30 per cent, 6.05 per cent, 11.25 per cent, and 6.63 per cent respectively. Growth of total energy consumption from all conventional sources in terms of peta joules was 6.04 per cent during 1970-1 to 2010-11. Per capita energy consumption grew at an average annual rate of 5.30 per cent during this period. The elasticity of energy use ( Kwh per rupee), defined as the amount of energy consumed for generating one unit of gross domestic production (GDP), has, however, been less than one. The consumption pattern of energy by primary sources expressed in terms of peta joules shows that electricity generation accounted for about 51 per cent of the total consumption of all primary sources of energy during 2010-11, followed by coal and lignite (25 per cent) and crude petroleum (20 per cent).

POWER

Generation

Electricity generation by power utilities during 2012-13 was targeted to go up by 6.05 per cent to 930 billion units. The growth in power generation during April to December, 2012 was 4.55 per cent, as compared to about 9.33 per cent during April to December, 2011.

In the thermal category, growth in generation from coal, lignite, and gas-based stations was of the order of 13.90 per cent, 19.81 per cent, and (-) 25.49 per cent respectively. The overall plant load factor (PLF), a measure of efficiency of thermal power stations, during April to December 2012 declined to 69.63 per cent as compared to the PLF of 71.94 per cent achieved during April to December 2011.

Capacity Addition

The Eleventh Five Year Plan initially envisaged a capacity addition of 78,000 MW, of which 19.9 per cent capacity was hydro, 75.8 per cent thermal, and the rest nuclear. At the time of the Mid Term Appraisal (MTA) of the Eleventh Plan, the target was revised to 62,374 MW with the thermal, hydro, and nuclear segments contributing 50,757 MW, 8,237 MW, and 3,380 MW respectively. A capacity addition of 54,964 MW has been achieved during the Eleventh Plan. The capacity addition during the Twelfth Plan period is estimated at 88,537 MW comprising 26,182 MW in the central sector, 15,530 MW in the state sector, and 46,825 MW in the private sector respectively. The capacity addition target for the year 2012-13 was set at 17,956 MW. As against it, a capacity of 9,854 MW has been added till 31 December 2012.

Development of Hydro Power

As per a re-assessment study carried out by the Central Electricity Authority (CEA), the identified hydroelectric potential of the country (having installed capacity above 25 MW) is 1,45,320 MW. As of now, 434 hydropower projects/schemes are at different stages of operation/ approval/investigation.

Ultra Mega Power Project Initiatives

The Ministry of Power launched an initiative for development of coal-based super critical Ultra Mega Power Projects (UMPP) of about 4000 MW capacity each. Four UMPPs, viz. Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, and Tilaiya in Jharkhand have already been transferred to the identified developers and are at different stages of implementation. Three units of Mundra UMPP each of 800 MW have been commissioned in March, July, and October 2012. The fourth and fifth units are expected to achieve commercial operation in May and September 2013. Other awarded UMPPs are expected to come up in the Twelfth Plan (except the last unit of the Tilaiya UMPP, which is likely to come up in the Thirteenth Plan).

Transmission, Trading, Access, and Exchange

National Grid

An integrated power transmission grid helps to even out supply-demand mis-matches. The existing inter-regional transmission capacity of 27,750 MW connects the northern, western, eastern, and north-eastern regions in a synchronous mode operating at the same frequency and the southern region asynchronously operating in the same mode. This has enabled inter-regional energy exchanges of about 48,896 million units (MUs) during April-December 2012, thus contributing to better utilization of generation capacity and improvement in power supply position. Synchronous inter-connection of the southern region with other regions is expected to be established by Q1 of 2014

Open access

Competition in the electricity sector has been augmented through open access, allowing a buyer to choose the supplier and a seller to choose the buyer. Open access at inter-state level is now fully functional. The facilitative framework created through the Central Electricity Regulatory Commission [CERC] (Open Access in Inter-State Transmission) Regulations 2008 has provided regulatory certainty for the sellers and buyers through market access and also the security of payment against default by buyers. During 2011-12. inter-state short-term open access transactions (including bilateral and collective) were approved for sale of 66,987 MU. During 2012-13 (up to November 2012), sale of 48,008 MU has been approved through 21,185 inter-state bilateral and collective short-term open access transactions. The CERC also notified the regulations concerning grant of connectivity, long-term access, and medium-term open access in inter-state transmission in 2009 and regulations for approvals for execution of the interstate transmission scheme in 2010 to ensure development of an efficient, reliable, coordinated, and economical inter-state electricity transmission system based on the long-term access sought by generation developers.

Trading of Electricity

Trading in electricity is enabled through electricity traders and power exchanges. It optimizes generation resources by facilitating trade and flow of electricity across the country. It has helped in sale of surplus power by distributing utilities and captive power plants on one hand and purchase of power by deficit utilities on the other hand to meet sudden increases in demand. The short-term markets also provide generators with an alternative to sell power other than through long-term power purchase agreements (PPAs). The CERC has granted 61 inter-state trading licences, 45 of which were in existence as on 30 November 2012. There is a cap on trading margins to be charged by traders under the regulations. For short-term contracts with the per unit price of electricity being less than Rs. 3 (Rupees Three), the trading margin is 4 (four) paise per unit and for per unit price of electricity higher than Rs. 3, the trading margin is capped at 7 (seven) paise per unit.

Rural Electrification

The Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) was launched in April 2005 with the objective of providing all rural households access to electricity through the creation of an appropriate rural electricity infrastructure. Below poverty line (BPL) households are provided connections free of cost. The Government of India provides 90 per cent capital subsidy for projects under the scheme.

PETROLEUM

In order to meet the burgeoning demand for petroleum products in the country, the government has taken several measures to enhance exploration and exploitation of petroleum resources including natural gas and coal bed methane (CBM), apart from improved distribution, marketing, and pricing of petroleum products. During financial year 2011-12, crude oil production was 38.09 million metric tonnes (MMT), with the share of national oil companies at 72.4 per cent. The projected crude oil production in 2012-13 is 42.31 MMT which is about 11.1 per cent higher than that in 2011-12. The increase in production is expected mainly on account of higher crude oil production from Barmer Fields, Rajasthan. Crude oil production by Cairn Energy India Pvt. Ltd. in Rajasthan started with effect from 29 August 2009 and reached 5.77 MMT during April-November 2012 against 4.26 MMT during the same period of 2011- 12.

Exploration of Domestic Oil and Gas

The NELP was adopted in 1999. India has an estimated sedimentary area of 3.14 million sq. km, comprising 26 sedimentary basins. Prior to adoption of the NELP, only 11 per cent of Indian sedimentary basins were under exploration. Since the operationalization of the NELP in 1999, the government has awarded an area of 47.3 per cent of Indian sedimentary basin for exploration. So far, 117 oil and gas discoveries have been made in 39 NELP blocks. As on April 2012, about 737 MMT of oil equivalent hydrocarbon reserves have been added under the NELP. The investment made by Indian and foreign companies until April 2012 was of the order of US$ 20.2 billion, of which US $12.1 billion was on hydrocarbon exploration and US$ 8.1 billion on development of discoveries. With a view to further accelerating the pace of exploration, in the ninth round of the NELP (NELP-IX), 34 exploration blocks were offered. These include 8 deep-water blocks, 7 shallow-water blocks, 11 on-land blocks, and 8 Type-S on-land blocks. Nineteen production-sharing contracts have already been signed with the awardees. A total of 254 production-sharing contracts have been signed under the NELP so far.

Domestic Exploration of other Gaseous Fuel CBM

India has the fourth largest proven coal reserves in the world and holds significant prospects for exploration and exploitation of CBM. Under the CBM policy, 33 exploration blocks have been awarded in Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamil Nadu, and West Bengal. Out of the total available coal-bearing area of 26,000 sq. km for CBM exploration in the country, exploration has been initiated in about 17,000 sq. km. The estimated CBM resources in the country are about 92 trillion cubic feet (TCF), out of which only 8.92 TCF has so far been established. Commercial production of CBM in India has now become a reality with current production of about 0.28 MMSCMD.

Shale Gas

Shale Gas can emerge as an important new source of energy in the country. India has several shale formations which seem to hold shale gas. The shale gas formations are spread over several sedimentary basins such as Cambay, Gondwana, Krishna-Godawari on-land, and Cauvery. The Director General Hydrocarbans (DGH) has initiated steps to identify prospective areas for shale gas exploration. A multi-organizational team (MOT) of the DGH, Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL), Gas Authority of India Limited (GAIL) has been formed by the government to examine the existing data set and suggest a methodology for shale gas development in India. Further, a memorandum of agreement (MoU) between the Department of State, USA and Ministry of Petroleum and Natural Gas has been signed for assessment of shale gas resources in India, imparting training to Indian geo-scientists and engineers, and assistance in the formulation of regulatory frameworks. A draft Shale Oil /Gas Policy was placed in the public domain by the government for inviting comments. The views/comments received from various stakeholders/ agencies are under examination.

Equity Oil and Gas from abroad

In view of an unfavourable demand-supply ratio of hydrocarbons in the country, acquiring equity oil and gas assets overseas is an important strategy for enhancing energy security. The government is encouraging national oil companies to aggressively pursue equity oil and gas opportunities overseas. ONGC Videsh Limited (OVL) has produced about 8.753MMT of oil and equivalent gas during the year 2011-12 from its assets abroad in Sudan, Vietnam, Venezuela, Russia, Syria, Brazil, South Sudan, and Colombia. The estimated crude oil and natural gas production in 2012-13 is about 6.865 MMT. The reasons for lower overseas production are geopolitical problems in South Sudan and Syria. Oil public-sector units (PSU), viz. OVL, India Oil Corporation (IOC), OIL, Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), and GAIL have acquired exploration and production (E&P) assets in more than 20 countries.

Rajiv Gandhi Gramin LPG Vitaran Yojna

The 'Vision-2015' adopted for the LPG sector inter alia focuses on raising the LPG population coverage in rural areas and areas where LPG coverage is low. The Rajiv Gandhi Gramin LPG Vitaran Yojana (RGGLVY) for small-size LPG distribution agencies has been launched in 2009. Under this scheme 75 per cent population is to be covered by 2015 by releasing 5.5 crore new LPG connections. To ensure that growth of LPG usage is evenly spread, public-sector oil marketing companies (OMCs) are assessing/identifying locations in a phased manner under the RGGLVY. OMCs have undertaken to set up 5,261 LPG distributors in 29 states. Out of this 1,591 LPG distributors had already been commissioned as on November 1, 2012. Selection for the rest of the locations is in progress as per policy.

Direct Transfer of Cash- LPG Scheme

In order to check leakages, adulteration, and inefficiency resulting from the current system of delivery of subsidized products, the Government of India set up a task force for evolving a suitable mechanism for direct transfer of subsidies to individuals/families, who are entitled to subsidized kerosene, LPG, and fertilizers. A pilot project was launched at Mysore. So far details of 35,000 customers have been collected. Of these, nearly 18,000 have authenticated Aadhaar numbers. As on 25 November 2012, OMCs had completed more than 35,000 successful biometric-authenticated deliveries. Modalities on subsidy payment as token amount (Rs. 10) have been finalized with sponsor bank and participating banks using the Aadhaar Payment Bridge. It has now been decided to close the Mysore Pilot Project as Mysore is one of the 51 districts selected for roll-out under the wider direct benefit transfer scheme.

TRANSPORT SECTORS

Railways

The Twelfth Five Year Plan (2012-2017) has envisaged an integrated approach for the transport sector as a whole. The vision for transport is to be guided by a modal mix that will lead to an efficient, sustainable, economical, safe, reliable, environmentfriendly, and regionally balanced transport system.

In line with the objectives of the Plan, Indian Railways aims at developing a strategy to build up the rail network to be part of an effective multi-modal transport system.

Dedicated Freight Corridor Project

The Eastern and Western Dedicated Freight Corridors (DFC) are a mega rail transport project being undertaken to increase transportation capacity, reduce unit costs of transportation, and improve service quality. The Eastern DFC (1839 route kilometres [RKM]) extends from Dankuni near Kolkata to Ludhiana in Punjab, while the Western DFC (1499 RKM) extends from the Jawahar Lal Nehru Port (JNPT) in Mumbai to Dadri /Rewari near Delhi. A special purpose vehicle, the Dedicated Freight Corridor Corporation of India Limited has been set up to implement the project. Out of 10,703 ha of land to be acquired for the project, 7,768 ha (73 per cent) has already been awarded under the Railway Amendment Act (RAA) 2008. The Eastern and Western DFC projects are being funded through a mix of bilateral/multilateral loans, gross budgetary support (GBS), and PPP. The Western DFC is being funded by the Japan International Cooperation Agency (JICA) up to 77 per cent of the total cost. Funding has been tied up and award of civil contract of 900 km is in process. The remaining portion of the project construction cost will be borne by the Ministry of Railways as equity funding. The Ludhiana to Mughalsarai section (1183 km) of the Eastern DFC is being funded by the World Bank up to 66 per cent of the project cost. Funding for the first sector, viz. Khurja-Kanpur (343 km), has been tied up and award of civil contract is under way. Funding tie up with the World Bank for the remaining sectors is also in process. The Mughalsarai-Sonnagar sector (122 km) will be funded by Indian Railways' own resources. Civil construction work of this sector is in progress. The Dankuni-Sonnagar section (534 km) of the Eastern DFC will be implemented through PPP mode.

Apart from the Eastern and Western DFCs, a feasibility study has also been undertaken on four future freight corridors, viz. East-West Corridor (Kolkata-Mumbai), North-South Corridor (Delhi-Chennai), East Coast Corridor (Kharagpur- Vijayawada) and Southern Corridor (Goa-Chennai). A pre-feasibility study of the Chennai-Bangalore Freight Corridor is also being proposed. After commissioning of the Eastern and Western DFCs, it is planned to upgrade the speed of passenger trains to 160-200 kmph on the existing routes. A feasibility study for upgradation of speed of passenger trains to 160-200 kmph on the existing Delhi-Mumbai route has been undertaken with co-operation from the Government of Japan in 2012-13.

New Initiatives by Indian Railways

• Kisan Vision Project: To encourage setting up of cold storage and temperature-controlled perishable cargo centres through PPP mode, logistics based PSUs including the Container Corporation of India Limited, Central Warehousing Corporation, and Central Rail-side Warehouse Company Limited have been asked to provide infrastructure at six Indian Railways locations under a pilot project--the Kisan Vision Project. Of the six locations, so far Singur (West Bengal) and Nasik (Ojhar in Maharashtra) are in operation, while New Jalpaiguri (West Bengal), Dankuni (West Bengal), and New Azadpur (Adarsh Nagar, Delhi) are under process and will shortly be completed. Macheda (West Bengal) being not a remunerative project, was not found to be a potential location for setting up a perishable cargo shed.

• High-speed passenger trains: Indian Railways is adopting a multi-pronged strategy to provide safer, faster, cleaner, and more comfortable passenger trains. Seven corridors have been identified for conducting pre-feasibility studies for running high-speed trains (popularly referred to as bullet trains) at speeds above 350 kmph. These corridors will be set up through PPP route. Initially, the Mumbai-Ahmedabad corridor has been taken up for which the pre-feasibility study has been completed. Work is in progress in respect of the remaining corridors. A study is also being done on the Delhi-Mumbai route for raising the speed of passenger trains from 160 kmph to 200 kmph, i.e. for running semi-high speed trains.

• Induction of LHB Coaches: Linke Holfmann Busch (LHB) coaches are being inducted in train services including existing and certain important Rajdhani and mail/express trains. Till December 2012, LHB coaches had been inducted in about 14 Rajdhani, 12 Shatabdi, and 11 AC Duronto services. LHB coaches have higher carrying capacity, better riding comfort, higher-speed potential, longer life, upgraded amenities, provision of control discharge toilet system, lower maintenance requirement, enhanced safety features, and aesthetic interiors. A rail coach factory at Palakkad has been sanctioned in PPP mode for production of such coaches.

• Introduction of bio-toilets: With a commitment to providing hygienic environment to its passengers and staff, Indian Railways along with the Defence Research and Development Organization (DRDO) has developed environment-friendly bio-toilets for its passenger coaches. Eight trains are running with 436 biotoilets. A complete switch-over to bio-toilets in new coaches has been planned by 2016-17 and Indian Railways has targeted elimination of direct discharge passenger coach toilet systems by the end of the Thirteenth Five Year Plan (2021-22).

Roads

National Highway Development Projects: As of now about 24 per cent of the total length of National Highways (NHs) is single lane/intermediate lane, about 51 per cent is two-lane standard, and the balance 25 per cent is four-lane standard or more. In 2012-13, the achievement under various phases of the National Highways Development Project (NHDP) up to December 2012 has been about 1,605 km and projects have been awarded for a total length of about 878 km.

TELECOMMUNICATION

The telecom sector has been one of the fastest growing sectors in recent years. It is now the second largest telephone network in the world, after only China. A series of reform measures by the government, wireless technology, and active participation by the private sector played an important role in the exponential growth of the telecom sector in the country. Tele-density, which shows the number of telephones per 100 persons, was 76.75 per cent at the end of October 2012. With the growth of mobile telephony due to easy access and affordability, the number of landline telephones has declined from 32.17 million as on end March 2012 to 30.95 million as on 31 October 2012. Wireless telephones now account for 96.7 per cent of all telephones. The share of the private sector, in terms of number of subscribers, has increased from 86.3 per cent to 86.6 per cent during the period from April to June 2012 and is currently placed at 86.1 per cent (end- October 2012).

Since the announcement of the Broadband Policy in 2004, several measures have been taken to promote broadband penetration in the country. As a result, there were 22.86 million internet subscribers including 13.79 million broadband subscribers at the end of March 2012. Broadband subscribers increased to 14.81 million by the end of October 2012. Special efforts are being made to increase the penetration of broadband, especially in rural and remote areas. The government has approved a project at a cost of Rs. 20,000 crore for creating a National Optical Fiber Network (NOFN) which will provide broadband connectivity to 2.5 lakh gram panchayats for various applications like ehealth, e-education, and e-governance. The project is being funded under the Universal Service Obligation Fund (USOF).

NTP-2012

The Government approved National Telecom Policy (NTP) 2012, which addresses the vision, strategic direction, and the various medium- and long-term issues related to the telecom sector, on 31 May 2012. NTP-2012 is aimed at maximizing public good by making affordable, reliable, and secure telecommuni-cation and broadband services available across the country. The objectives of NTP-2012 include the following:

• Provide secure, affordable, and high-quality telecommunication services to all citizens.
• Strive to create One Nation-One Licence across services and service areas.
• Achieve One Nation-Full Mobile Number Portability and work towards One Nation-Free Roaming.
• Increase rural tele-density from the current level of around 39 to 70 by the year 2017 and 100 by the year 2020.
• Recognize telecom, including broadband connectivity, as a basic necessity like education and health and work towards 'Right to Broadband'.

• Provide affordable and reliable broadband-on-demand by the year 2015 and to achieve 175 million broadband connections by the year 2017 and 600 million by the year 2020 at minimum 2 Mbps download speed and make available higher speeds of at least 100 Mbps on demand.

• Provide high-speed and high-quality broadband access to all village panchayats through a combination of technologies by the year 2014 and progressively to all villages and habitations by 2020.
• Recognize telecom as an infrastructure sector to realize the true potential of information communication technology (ICT) for development
• Address right-of-way (RoW) issues in setting up of telecom infrastructure.
• Mandate an ecosystem for ensuring setting up of a common platform for interconnection of various networks for providing non-exclusive and non-discriminatory access.
• Strive for enhanced and continued adoption of green policy in telecom and incentivize use of renewable resources for sustainability

• Achieve substantial transition to the new Internet Protocol (IPv 6) in the country in a phased and time-bound manner by 2020 and encourage an ecosystem for provision of a significantly large bouquet of services on the IP platform.

USOF

With the objective of promoting rural telephony, the government formed a Universal Service Obligation Fund (USOF). Under the Shared Mobile Infrastructure Scheme of USOF 7,310 towers were set up by the end of November 2012 and 15,971 base transceiver stations commissioned by service providers at these towers for provisioning of mobile services. Under another scheme for village public telephones (VPTs), at the end of November 2012 a total of 5,81,572 (97.97 per cent) villages had been covered. VPTs are likely to be provided in the remaining inhabited revenue villages by March 2013 through the ongoing USOF scheme for provision of VPTs in newly identified uncovered villages as per Census 2001.

For providing broadband connectivity to rural and remote areas, the USOF signed an agreement with Bharat Sanchar Nigam Limited on 20 January, 2009 under the Rural Wireline Broadband Scheme to provide wire-line broadband connectivity (with a speed of at least 512 kbps, always on) to rural and remote areas by leveraging the existing rural exchanges infrastructure and copper wire-line network. As on 31 August 2012, a total of 3,91,245 broadband connections had been provided and 10,076 kiosks set up in rural and remote areas.

URBAN INFRASTRUCTURE

Urban Infrastructure and Governance

The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched by the Ministry of Urban Development for a seven-year period (i.e. up to March 2012) to encourage cities to initiate steps for bringing improvements in a phased manner in their civic service levels. The government has extended the tenure of the Mission for two years, i.e. from 1 April 2012 to 31 March 2014. The components under the sub-mission Urban Infrastructure and Governance (UIG) include urban renewal, water supply (including desalination plants), sanitation, sewerage and solid waste management, urban transport, development of heritage areas, and preservation of water bodies. Revised allocation for the UIG for the Mission period is Rs. 31,500 crore. A sum of Rs. 6,340 crore (BE) has been provided for the year 2012-13. The JNNURM has also emphasized the implementation of three key mandatory pro-poor reforms to enhance the capacity of urban local bodies (ULBs):

• Internal earmarking within local body budgets for basic services to the urban poor.
• Earmarking of at least 20-25 per cent of developed land in all housing projects (both public and private agencies) for the economically weaker sections (EWS)/ low income groups (LIG) category.
• Implementation of a seven-point charter for provisioning of seven basic entitlements/ services.

All the selected 65 cities under the UIG component of the JNNURM have prepared comprehensive city development plans (CDPs), charting their long-term vision and goals in urban governance and development. These plans include investment plans, with a focus on provision of citywide urban services such as water supply, sanitation, drainage, and provision of basic services to the urban poor. During the Mission period, highest priority has been accorded to water supply, sanitation, and storm-water drainage sectors that directly benefit the urban poor. As on December 2012, more than 91 per cent of the seven-year additional central assistance (ACA) allocation of Rs. 31,500 crore had been committed.

Credit flow to infrastructure sector

The India Infrastructure Finance Company Limited (IIFCL) was set up in 2006 for providing longterm financing for infrastructure projects that typically involve long gestation periods. The IIFCL provides financial assistance up to 20 per cent of the project cost both through direct lending to project companies and by refinancing banks and financial institutions. The IIFCL raises funds from both domestic and overseas markets on the strength of government guarantees. It has sanctioned loans aggregating Rs. 40,373 crore for 229 projects involving a total investment of Rs. 3,52,047 crore and disbursed Rs. 20,377 crore till 31 March 2012. The IIFCL is expected to graduate in the Twelfth Plan from the existing role of a normal lender to that of a catalyst mobilizing additional resources for financing of infrastructure. This could be achieved by the IIFCL providing guarantees for bonds issued by private infrastructure companies rather than expanding its direct lending operations. This would enable mobilization of insurance and pension funds, external debt, and household savings. The IIFCL would also make subordinated debt available as an additional source of finance. Further, it may also substitute its take-out financing scheme with an Infrastructure Debt Fund.

Continued global risks and moderated business sentiment have affected FDI inflows to key infrastructure during the current financial year. The total FDI inflows into major infrastructure sectors during April-November 2012 have dipped significantly registering a contraction of 97.8 per cent. The major decline has been in the power sector (-68 per cent), petroleum and natural gas (-89 per cent), and telecommunications (-96 per cent). Regulatory uncertainties, slower growth, and delays in acquisition of land were some of the reasons for decline in FDI inflows in the infrastructure sector in the current year.

PPP initiatives

The government is promoting PPPs as an effective tool for bringing private-sector efficiencies in creation of economic and social infrastructure assets and delivery of quality public services. According to a World Bank Report on Private Participation in Infrastructure (PPI), India has been the top recipient of PPI activity since 2006 and has implemented 43 new projects which attracted total investment of US$20.7 billion in 2011. India alone accounted for almost half of the investment in new PPI projects implemented in developing countries during the first semester of 2011. The Report maintained that India remained the largest market for PPI in the developing world. In the South Asian region, India attracted 98 per cent of regional investment and implemented 43 of the 44 new projects in the region.

CHALLENGES AND OUTLOOK

From a macroeconomic perspective, a high level of investment in the infrastructure sector is essential for the overall revival of investment climate which may finally lead to sustainable growth in an economy. However, in the current macroeconomic environment, to achieve this objective, there is need to address sector-specific issues over the mediumto long-term horizon in India.

There is an overall shortage of power in the country both in terms of energy deficit and peak shortage. At present, overall energy deficit is about 8.6 per cent and peak shortage of power is about 9.0 per cent. The Eleventh Plan added 55,000 MW of generation capacity which was more than twice the capacity added in the Tenth Plan. The Twelfth Plan aims to add another 88, 000 MW. Delivery of this additional capacity would critically depend on resolving fuel availability problems, especially when about half the generated capacity is expected to come from the private sector. The private developers may not be able to finance the projects if coal linkages are not resolved and there are delays in finalization of fuel supply agreements (FSAs).While some decisions have been taken for restructuring Discoms' finances, these may need to be monitored and implemented in spirit.
Although India has large coal reserves, demand for coal is substantially outpacing its domestic availability, with Coal India not being able to meet its coal production targets in the Eleventh Plan. Domestic coal supplies are therefore not assured for coal-based power projects planned during the Twelfth Plan. Hence it is essential to ensure that domestic production of coal increases from 540 million tonnes in 2011-12 to the target of 795 million tonnes at the end of the Plan. This increase of 255 million tonnes assumes an increase of 64 million tonnes of captive capacity with the rest being met by Coal India Limited. However, even with this increase, there will be a need to import 185 million tonnes of coal in 2016-17 which may further add to the financing cost of power projects. More effort must be made for improving competition and efficiency in the coal sector, which may entail structural reforms. Problems like delays in obtaining environmental clearances, land acquisitions, and rehabilitation need to be suitably addressed in fasttrack mode to achieve the Twelfth Plan targets for coal production while maintaining a balance between growth needs and environmental concerns. Progress of road projects has also suffered on account of similar factors. The creation of a High-Level Cabinet Committee on Investment to quicken the pace of decision making in critical infrastructure projects by the government is expected to resolve any issues involving inter-ministerial coordination.

Of late, financing of road projects has also run into difficulty as leveraged companies implementing road projects are unable to raise more debt in the absence of fresh equity. In current market conditions, these firms are unable to raise new equity. Exit route needs to be eased so that promoters can sell equity positions after construction, passing on all benefits and responsibilities to entities that step in. Promoters can then use the equity thus released for new projects. Steps are also needed to up-scale projects in PPP mode for achieving the targets envisaged for the development of roads in the Twelfth Plan.

The process of extending transparent policies and mechanisms for allocation of scarce natural resources to private companies for commercial purposes has also been initiated. The Mines & Mineral (Development and Regulation) Bill 2011 aims at providing a simple and transparent mechanism for grant of mining lease or prospecting licence through competitive bidding in areas of known mineralization and on first-in-time basis in areas where mineralization is not known. However, in order to meet the objective of revenue maximization in an open, transparent and competitive manner, this should be preceded by detailed geological mapping of the mineral wealth of the country. Further, any policy prescription regarding the use of natural resources must ensure that the process of selection is fair, reasonable, nondiscriminatory, transparent, and aimed at promoting healthy competition and equitable treatment.

Owing to a number of external and internal factors, viability of airline operations in India has come under stress. A high operating cost environment owing to high and rising cost of aviation turbine fuel (ATF) coupled with rupee depreciation is making operations unviable for carriers in India. The Expert Report of Nathan Economic Consulting India Private Ltd. (Nathan India) which went into the question of pricing and the tax regime governing ATF concluded that ATF prices in India are significantly higher (at least 40 per cent) than in competing hubs in the region such as Singapore, Hong Kong, and Dubai. Therefore, there is need to rationalize the tax regime particularly value added tax on ATF which is in the range of 20-30 per cent in most of the states. The Ministry of Civil Aviation is of the view that ATF should be included under the declared category of goods under the relevant provision of the Central Sales Tax Act so that a uniform levy of 5 per cent is achieved. Equally important is the need for a transparent pricing regime for ATF in India. A high tax regime for aviation in general and ATF in particular will reduce the wider economic benefits available from aviation, resulting in a negative impact on economic growth and overall government revenue bases.

Development of capability in Railways is another urgent priority for the Twelfth Plan. Capacity in Railways has lagged far behind what is needed, especially given the requirement of shifting from road transport to rail in the interests of improving energy efficiency and reducing carbon footprints in development. The funding pattern of the Twelfth Plan clearly shows that the modernization of Indian Railways cannot be achieved by simply relying on GBS as about 62 per cent of the resources would have to be generated through non-GBS sources and nearly 20 per cent through private-sector investment. There is a need to draw up clear strategies to generate resources by identifying segments where Indian Railways can adopt a low-cost policy by playing on volumes and taking advantage of economies of scale and segments where it can adopt a differentiation approach by providing high quality services and command premium prices.

As mentioned in the Twelfth Plan document, a GDP growth rate of about 8 per cent requires a growth rate of about 6 per cent in total energy use from all sources. Unfortunately, the capacity of the economy to expand domestic energy supplies to meet this demand is severely limited. The country is not well-endowed with energy resources, except coal, and the existence of policy distortions makes management of demand and supply more difficult. Accordingly, the short-run action needed to remove impediments to implementation of projects in infrastructure, especially in the area of energy, includes ensuring fuel supply to power stations, financial restructuring of Discoms, and clarity in terms of the NELP. At the same time, the long-term strategy should focus on issues like coal production, petroleum price distortion, natural gas pricing, and effective management of the urbanization process.