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(GIST OF YOJANA) Infrastructure: History & Challenges

[January-2022]

Infrastructure: History & Challenges

Context:

India’s independence was in itself a turning point in its economic history. The country was poor as a result of steady deindustrialisation by the British. Less than a sixth of Indians were literate. The abject poverty and sharp social differences had cast doubts on India’s survival as one nation.
India’s share of world income shrank from 22.6% in 1700 (almost equal to Europe’s share of 23.3%) to 3.8% in 1952.

Infrastructure Development Model:

The model envisaged a dominant role of the state as an all-pervasive entrepreneur and financier of private businesses. The Industrial Policy Resolution (IPR) of 1948 proposed a mixed economy.
Earlier, the ‘Bombay Plan’, proposed by eight influential industrialists envisaged a substantial public sector with State interventions and regulations in order to protect indigenous industries.
The political leadership believed that since planning was not possible in a market economy, the state and public sector would inevitably play a leading role in economic progress.
India set up the Planning Commission in 1950 to oversee the entire range of planning,
including resource allocation, implementation, and appraisal of five-year plans. These Plans were centralised economic and social growth programmes modelled after those prevalent in the USSR.
India’s first Five-Year Plan, launched in 1951, focused on agriculture and irrigation to boost farm output as India was losing precious foreign reserves on foodgrain imports.
The First Five-Year Plan was based on the Harrod–Domar model with few modifications. By the end of the Plan in 1956, five Indian Institutes of Technology (IITs) were started as major technical institutions. The University Grants Commission (UGC) was set up to take care of funding and take measures to strengthen higher education in the country. Contracts were signed to start five steel plants, which came into existence in the middle of the Second Five-Year Plan.
The Second Five-Year Plan and the Industrial Policy Resolution 1956 (long considered the economic constitution of India) paved the way for the development of the public sector and ushered in the License Raj. The Second Plan focused on the development of the public sector and ‘rapid Industrialisation’. The Plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953.
From the Second Five-Year Plan, there was a determined thrust towards substitution of
basic and capital good industries. Hydroelectric power projects and five steel plants at Bhilai, Durgapur, and Rourkela were established with the help of the Soviet Union, Britain (the UK), and West Germany respectively. Coal production was increased enormously.
More railway lines were added in North East. The Tata Institute of Fundamental Research
(TIFR) and the Atomic Energy Commission of India were established as research institutes. In 1957, a talent search and scholarship programme was begun to find talented students to train for work in nuclear power.
Power and steel were identified as the key bases for planning. The 680ft Bhakra multi-purpose project on the Sutlej river in Himachal Pradesh was considered a new landmark of a resurgent India.
The huge Bhakra-Nangal dams are among several hydel projects India built to light up homes, run factories, and irrigate crops. The second plan set a target to produce 6 million tonnes of steel. Germany was contracted to build a steel plant in Rourkela, while Russia and Britain would build one each in Bhilai and Durgapur, respectively. Nationalisation of 14 public sector banks was a major event during the Fourth Plan (1969-74) which had a huge impact on the Indian economy & infrastructure. The Indian National Highway System was introduced and many roads were widened to accommodate the increasing traffic during the Fifth Plan (1974-78).
Infrastructure provisioning requires massive investments, often over a prolonged duration of time, coupled with procedural delays and returns expected after a long period of investment. Consequently, given the high fiscal requirements, particularly of large-scale infrastructure development projects, public investments alone may not be sufficient to fund infrastructure development in India.
Consequently, time and again there have been recommendations to encourage private participation in infrastructure development through various forms of Public-private Partnerships (PPPs).

Recent Milestones:

India is heralding in an era of new transformation, which has an enormous prospect for growth. We are expected to become a USD5 trillion economy by 2024 and aspire to become a USD10 trillion economy by 2030. There is a huge potential for entities to play a transformational role in the upcoming time. There are opportunities for large-scale development to meet the aspirations of the ‘Young India.’
In order to promote affordable housing, the Government has made several efforts to create an enabling environment. Infrastructure status has been granted to affordable housing which will enable these projects to avail the associated benefits such as lower borrowing rates, tax concessions, and increased flow of foreign and private capital.

Real Estate (Regulation and Development Act) [RERA]

Proactive measures, such as the Real Estate (Regulation and Development) Act, 2016(RERA), Real Estate Investment Trusts (REITs), the Benami Transactions (Prohibition) Amendment Act 2016, higher tax breaks on home loans, the Goods and Services Tax (GST), land-related reforms, optimising development control rules, rationalising of the stamp duty and registration charges, digitalisation, etc., have also been introduced by the Government.
Before RERA, the Indian Real Estate sector was largely unregulated till 2016, which led to many anomalies resulting in various unfair practices, ultimately affecting the homebuyers adversely. Therefore, a need was being felt for a long time to regulate the sector in such a way so as to ensure transparency and accountability. RERA marked the beginning of a new era in the Indian Real Estate sector.
Responding to the demand and supply gap in affordable housing, the Government of India launched Pradhan Mantri Awas Yojana (PMAY)- Urban in 2015. The larger goal is to fulfill the housing needs of homeless urban poor and enable them to own decent pucca houses with basic infrastructure facilities by 2022. Based on demand assessment at the State level, the nation has the mammoth task of constructing about 12 million houses under EWS/LIG segment of the society in order to achieve the goal of Housing for All.

Affordable Rental Housing Complexes (ARHCs)

The Ministry of Housing and Urban Affairs (MoHUA), has initiated Affordable Rental Housing Complexes (ARHCs) for urban migrants/ poor.
ARHCs will play a vital role in wealth creation, development of infrastructure, and providing dignified living will all basic amenities to the urban poor/migrants.
These initiatives will be effective in spurring housing and construction activities, providing huge relief to real estate developers.
Also, these would attract private and foreign investments in the housing sector, having a positive multiplier effect on GDP and labour market. The availability of encumbrance-free land
within existing municipal areas for urban housing schemes is not an easy task. Therefore, provision has been made to include rural areas falling within the notified Planning/Development areas, under the ambit of PMAY (U). It would leverage the availability of additional land at a cheaper cost for the construction of affordable houses.
Bharatmala Pariyojana is a new umbrella programme for the highways sector that focuses on optimising the efficiency of freight and passenger movement across the country by bridging critical infrastructural gaps through effective interventions like the development of Economic Corridors, Inter Corridors, and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads, and Green-field expressways. A total 24,800 kms are being considered in Phase I of Bharatmala project. Improvement in the efficiency of existing corridors through the development of Multi-Modal Logistics Parks (MMLPs).

Urban Mass Rapid Transport

The concept of mass rapid transit for New Delhi first emerged from a traffic and travel characteristics study which was carried out in the city in 1969.
The Government of India and the Government of Delhi jointly set up a company called the Delhi Metro Rail Corporation (DMRC) on 3 May 1995, with E Sreedharan as the Managing Director.
DMRC, a special-purpose organisation, is vested with great autonomy and powers to execute this gigantic project involving many technical complexities, under a difficult urban environment, and within a very limited time frame.
DMRC was given full powers to hire people, decide on tenders, and control funds. The first line of the Delhi Metro, the Red Line, was inaugurated on 24 December 2002.
The Delhi Metro became the second underground rapid transit system in India, after the Kolkata Metro, when the Vishwa Vidyalaya–Kashmere Gate section of the Yellow Line opened on 20 December 2004.

Way Forward

The Introduction of ‘MetroLite’ or ‘MetroNeo’, as recommended by the Government, is mandated in cities with lower capacity requirements. This is considering the significantly less capital cost which has a bearing on the overall funding requirement and commercial sustainability.
The quality of infrastructure development in India needs urgent attention if the country intends to realise its economic and growth potential. Infrastructure development remains a key constraint in India’s economic development. Although investments in infrastructure alone do not guarantee growth, in general, scholarly studies estimate that a strong association exists between the availability of infrastructure provisions and economic growth measured in terms of gross domestic product (GDP).
In other words, industrial growth is contingent upon the development of other infrastructural facilities such as transportation, energy, and electricity, and communications However, infrastructure development in itself remains both a financial and a regulatory challenge.
In order to do so, in addition to the available provisions for public investments, efforts must be made to adequately channelise the opportunities for private participation in the real estate/housing sector.