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Infrastructure the missing link

By CNN's Asia Business Editor Geoff Hiscock

To achieve higher economic growth, India needs better ports as part of an overall infrastructure upgrade, experts say.
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Prime Minister Manmohan Singh's government reaches 100 days and is trying to run a diverse and vast democracy.

Despite the positive outlook, tourism experts say the Indian government still needs to more money.

Old meets new as India attempts to balance its high tech future with a traditional past.
Recent GDP rates

1998-99: 6.5 percent
1999-00: 6.1 percent
2000-01: 4.4 percent
2001-02: 5.8 percent
2002-03: 4.0 percent
2003-04: 8.2 percent
2004-05: 6.4 percent (F)
India's financial year ends March 31

Source: Morgan Stanley
Government Debt
International Trade

MUMBAI, India (CNN) -- Late last month large advertisements appeared in India's major newspapers for "The Missing Link".

It had nothing to do with natural evolution, and everything to do with India's pressing need for better physical infrastructure.

The missing link in this case is a 22-kilometer $600 million bridge designed to deliver an expressway connection between India's commercial hub of Mumbai and its new port at Navi (New) Mumbai.

The global invitation for tender pre-qualification is at least a start on a project that has been on the drawing board for 20 years.

But the reality is any bridge will take four years to build -- in the meantime consigning traffic from the new port to a tedious journey over crowded roads.

The Mumbai Trans Harbor Link is just one of many "missing links" in the sorry state of India's infrastructure stock.

In any economic comparison between the emerging Asian superpowers of India and China, the most easily identified fault on the Indian side is its comparatively poor physical infrastructure.

In roads, rail, ports, power and water, India lags behind. The reason is simple: it just does not spend enough on these essential economic underpinnings.

According to Morgan Stanley's Mumbai-based chief economist Chetan Ahya, China spent $260 billion -- or 20 percent of its GDP -- on power, construction, transportation, telecommunications and real estate in 2002. In comparison, India spent just $31 billion, or 6 percent of GDP.

Ahya says the cost of most infrastructure services in India runs about 50 percent to 100 percent higher than China.

He identifies the electricity sector as India's biggest infrastructure bottleneck, noting that there are daily supply cuts in all but a select few cities.

The result is an annual Indian economic growth rate of around 6 percent, which, while respectable enough in most circumstances, is a couple of percentage points below its true potential, according to economic experts.

More importantly for social stability in a country of 1 billion-plus people, it is not enough to meet the demand for new jobs from the millions who seek to join the workforce every year.

Many jobseekers head for the expensive metropolis of Mumbai, which because it has a privatized power production and distribution system, is one of the favored few cities with 24-hour power.

In fact, according to Larry D'Souza, executive director of Mumbai's main business lobby group, the Bombay Chamber of Commerce of Industry, the city has good water, power and "excellent" telecommunications, plus a basic level of service in sanitation and street lights.

He says Mumbai accounts for 25 percent of India's GDP and is the home of the nation's corporate decision-making.

He envisions the city as an international financial services center comparable to London or New York. But first it needs to upgrade its housing stock and overhaul what he calls its "archaic" land laws to attract more of the global services trade.

Elsewhere, there are plenty of other big plans for roads, ports and rail, including the ambitious National Highway Development Project. This calls for the upgrading of almost 6000 kilometers of road connecting the four metros of New Delhi, Chennai, Kolkata and Mumbai.

But progess has been slow, and the Indian consumer's love affair with new cars, motorbikes and scooters means roads are perpetually clogged.

On the international trade front too, India's inefficient ports impose a significant cost on cargo.

According to Morgan Stanley, freight as a percentage of total import value is about 11 percent in India, compared with a 6 percent global average and 5 percent for developed countries.

There is also a higher lead-time for trade: 6 to 12 weeks for India's trade with the United States, compared with China's 2 to 3 weeks.

In only one area, telecommunications, does India have relatively high-quality infrastructure, Ahya says. This has allowed it to achieve its potential in software services and business process outsourcing.

Still, the situation could improve in other sectors, with Prime Minister Manmohan Singh committing his government to an infrastructure upgrade, and announcing late last month the setting up of a special panel to monitor infrastructure projects.

For many, the pace of change is not rapid enough, particularly when comparisons are made with China's red-hot growth rate.

But unlike China, where new highways, bridges and ports can be fast-tracked by central government order, India must go through a time-consuming consensus-building process.

That means, according to D'Souza, that India's infrastructure shortcomings amount to a "democracy compensation tax".

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