India Looking to Upgrade Its Infrastructure

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India watchers are used to announcements of major infrastructure projects amid great fanfare, only for them to come to nothing — bogged down in India’s famous bureaucracy, land claims and lack of finance.

The government’s announcement with Japan in 2006 of a joint mega-infrastructure project is one such example. Said to cost an eye-popping US $90 billion, the project plans to link the political nerve centre of New Delhi with the commercial hub of Mumbai and its ports in a 1,483-km-long corridor of industrial development. The aim is to boost exports, employment, foreign investment and, in the process, technological advancement. The architects cannot be said to lack ambition: the corridor is to be equipped with an array of infrastructure facilities such as power plants, rail connectivity to ports en route, etc. Approximately 180 million people, 14 percent of the population, will be affected if the corridor achieves its potential.

Source: DMIC

The Delhi Mumbai Industrial Corridor (DMIC) project is said to incorporate nine mega industrial zones of about 200-250 square kilometers, a high-speed freight line, three ports, and six airports; a six-lane, intersection-free expressway connecting the country’s political and financial capitals and a 4000-MW power plant. Several industrial estates and clusters, and industrial hubs, most crucially with first-world infrastructure, would be developed along this corridor to attract more foreign investment. The Indian government would provide the funds for the project, as would Japanese loans, investment by Japanese firms and through Japanese depository receipts issued by the Indian companies.

Where The “So What?” Comes In

So why, if the idea was first hatched in 2006, is this idea noteworthy today? Because the government has finally earmarked an initial fund of $4.5 billion to build the core infrastructure of each city, such as roads, power supplies and sewage treatment plants, and expects a similar contribution from the project’s partner, Japan.

Once the basics are there, the thinking goes, investors will be convinced of the DMIC’s value and will build factories, housing and more in a public-private partnership. The government can then sell them the land it has acquired from farmers, using the funds to start building the next city. Apart from access to ongoing funds, control of corruption and keeping the project on track through India’s labyrinthine bureaucracy, one of the biggest hurdles will be that last phrase securing the land from India’s farmers.

Land rights are a major block to investment in India and not just for foreign firms. We have written before about India’s multinationals preferring to invest abroad rather than fight militant local farmers over land rights. Arguably, the government may be able to simply requisition land, but India is not China and will have to respect fair value and compensation that will slow the process horribly.

Not surprisingly, upgrading of existing facilities is progressing more readily. The World Bank has signed a US $975 million loan agreement with the Indian government to set up the Eastern Dedicated Freight Corridor that will help faster and more efficient movement of raw materials and finished goods between the northern and eastern parts of India. Indian railways urgently need to add freight routes to meet the growing freight traffic in India, which is projected to increase more than 7 percent annually.

The idea is that dedicated freight corridors will not only meet this growing freight demand, but also decongest the already saturated rail network and promote the shifting of freight transport from road to more efficient rail transport. The EDFC Project is intended to ease congestion choking the railway system and reduce travel time for passenger trains. World Bank financing will cover a route length of 1,130 kilometers out of a total corridor length of 1,839 kilometers and will be provided in three phases. The project signed this week will finance the first phase for the 343-kilometer section.

India has maintained robust growth even as the West has spluttered to a halt; the gradual opening of its economy in recent years has proved a hugely beneficial move by India. The extent to which the economy continues to grow may depend on how successful India is at tackling its infrastructure problems, either via grandiose $90-billion schemes, or piecemeal projects like dedicated freight corridors on the railways.

–Stuart Burns

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