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A passage through India

July 02, 2008 08:33 IST

It is 1am and Ashok Alange prays for a safe trip, lighting incense sticks before the miniature statue of the Hindu elephant god Ganesh that he keeps fixed to his truck's dashboard.

His second driver, Hanmunt Sagar, climbs aboard the locally made Eicher 9-tonne vehicle, which is laden with cans of paint and chemicals. Together they begin the journey from the yard of Patel Integrated Logistics, in Thane near Mumbai in Maharashtra state, to Ahmedabad, the capital of neighbouring Gujarat.

In terms of distance, the 540-kilometre drive is relatively short in a nation of India 's size. But the country's battered roads and red tape will turn the trip into an Indian infrastructure odyssey that will take nearly 24 hours with barely a break.

After only minutes on the road, the truck pulls into what will be the first of numerous government tax collection checkpoints and toll booths along the route. This one charges Rs100 ($2.35) simply for the privilege of entering and leaving the Thane district. That paid and a bumpy length of state road traversed, the truck joins the "Golden Quadrilateral", India 's national highway network - and almost immediately runs into a traffic jam so colossal it can probably be seen from the moon.

The non-air-conditioned cabin, already cloying in the monsoon humidity, fills with diesel exhaust as thousands of trucks jostle to pass through a toll plaza on the highway. Even though this is peak hour for Indian truck travel, only two or three toll booths are open.

The drivers seem unfased. "Jam," mutters Mr Alange and he settles in for a choking three-hour wait. The pair may not know it but they are at the frontline of what is possibly the biggest task facing India in its battle to develop - how to upgrade the country's crumbling and inefficient infrastructure. It is an issue that threatens not only to put the brakes on India 's rapid recent economic growth but also to exacerbate the growing problem of inflation.

During the decades of socialism that followed India 's independence in 1947, slow economic growth meant there was little money available to upgrade the country's sea- and airports, roads, railways and power plants. But in the years following economic liberalisation in 1991, activity picked up, culminating in the past four years when annual gross domestic product growth reached 9 per cent.

Recognising that infrastructure was emerging as India 's Achilles' heel, the government over the past year has set ambitious targets that aim to almost double investment in the sector to 9 per cent of gross domestic product a year over the next five years, or a total of $500bn. Projects range from modernising 35 secondary airports and adding 78,000 megawatts of electricity capacity (including nine so-called ultra-mega power plants with generating capacity of 4,000 megawatts each) to 387 ports-related developments.

The scale of the plans has led many to predict that India is embarking on a period of industrialisation as sweeping as that of the west during the 19th and 20th centuries. "There are times in the life of a country when huge growth rates are possible, like you saw in the early part of the 20th century in America and you saw again in postwar America and Europe," says Ajit Gulab­chand, chairman of Hindustan Construction Company, a big-ticket infrastructural builder. " India is now experiencing the start of a boom that will take at least 25 years more."

India 's plans are attracting unprecedented interest from private investors in a sector that was once solely the government's realm. These range from conglomerates such as the Tata, Reliance and Essar groups to a handful of entrepreneurs who have become billionaires overnight, such as Gautam Adani, whose Adani group built one of India 's first privately run seaports at Mundra in Gujarat.

"These guys are staggering for what they've achieved and also for their ambition. You've really got to look at the Carnegies in the States for the equivalent impact on history," says Michael Queen, managing partner at 3i, the UK-based private equity group, which has invested in Adani projects.

The scale of the opportunity has brought other foreign groups flocking in too, including Australia's Macquarie Bank and Citigroup of the US. "The prime attraction of India is the extraordinary demographic story that will support economic growth and therefore will support demand for infrastructure not only over the next five to 10 years but right through to 2050 and beyond," says Nick van Gelder, head of Macquarie Capital Funds in Asia.

India 's biggest infrastructure success story so far is the liberalisation of the telecommunications industry to allow almost unfettered private sector access. This has created the world's fastest growing market for mobile phones with a total of about 269m subscribers. The country has also completed showcase projects such as the Delhi metro. It has formed public-private partnerships to upgrade the international airports of Mumbai, Delhi, Hyderabad and Bangalore and built 3,600 miles of highways for the Golden Quadrilateral project, compared with the 300 miles built in the previous 50 years.

But in a country as vast as India and with a population of 1.1bn people, critics say much more progress is needed. On almost every front - ports, electricity, roads, airports and urban transport in centres such as Mumbai - infrastructure is close to breaking point. It takes exporters an average of more than 15 days to get their goods through customs - double that of other main emerging markets.

Perhaps the most worrying sector is power. Already power outages are costing Indian business nearly 7 per cent of sales - nearly six times the rate in China. McKinsey, the management consultancy, estimates in a recent report that if the economy continues to grow at even 8 per cent a year, the country will need to nearly triple its generating capacity within the next decade to about 440,000MW.

This means adding up to 10 times more capacity each year than the 4,000MW it built on average during the previous 10 years. This seems a tall order given that between 2003 and 2007 the government built less than half the 41,000MW it had targeted.

McKinsey lists the numerous reforms still needed in power, some of them politically difficult, such as privatising distribution in more cities, reducing theft and curbing indiscriminate subsidies for agriculture. India 's power plant equipment and construction companies need meanwhile to be strengthened and difficulties acquiring land, gas and coal all addressed - along with a shortage of semi-skilled workers to build the plants.

Beyond the physical realities, economists point to the less tangible reforms needed to stimulate progress in infrastructure, such as fostering a large corporate bond market to provide long-term capital, providing single windows for project approvals and unifying regulations across state borders.

At least as concerning than the challenges themselves, however, is a growing impatience evident in some quarters of Indian business over the speed of the reform process. The clearest sign of this is that, even as foreign investors are rushing to India , some local groups are quietly taking their cash overseas.

GMR Group, which recently completed a sparkling new airport at Hyderabad, in June bought the previously US-owned InterGen, an overseas power operator, for $1.2bn. The move follows a successful bid by the group for a contract to refurbish Istanbul's Sabiha Gokcen International Airport. GMR says the acquisition will give it the expertise to bid for large government power contracts in India.

But some executives in Indian infrastructure companies privately admit the real reason they are looking overseas is because things are moving too slowly at home. "People talk about the opportunities in India - though we would also love to invest only in India , where are these opportunities? It takes such a long time to crystallise a project," says one such local executive, who declined to be identified.

He points to the airports. The government has stalled on tendering for the 35 secondary airports, with few new projects being awarded in the sector since 2005. In power, India is sitting on some of the world's largest reserves of coal but bureaucracy between the state and central governments mean it is not being allocated quickly enough to power producers. "In India we are just twiddling our thumbs and waiting for the opportunities to emerge," the executive says.

With the Congress party-led ruling coalition facing a general election within the next year, few expect it to find the time or the political will to make a further big push on infrastructure any time soon. That means India will in all likelihood have to get used to slower economic growth.

Chetan Ahya, a Morgan Stanley economist, agrees with the government that for India to continue growing comfortably at 8 per cent a year, it needs to at least double its investment in infrastructure. He says India 's failure to step up infrastructure investment in the past few years to keep pace with investmentin other parts of the economy, such as manufacturing and services, has already led to over-heating and inflation - which, according to figures released last Friday, is at a 13-year high of 11.4 per cent. That is forcing the central bank to increase interest rates, choking economic growth.

While that may cost business money, ultimately it is people such as Mr Alange who pay the price for bad infrastructure - often with their lives, in a country whose road accident rate is 40 times that of the UK.

After clearing the jam at the toll booth, the truck finally makes its way towards the Gujarat border, dodging crater-like potholes and swerving at the last minute to avoid a broken down truck left parked in the middle of the highway.

At the border, Mr Alange must first buy an entry permit to get into the state, then queue in his truck at a separate booth to pay a central government tax. Often, drivers have to supplement these payments with bribes. The bureaucracy cleared, the truck finally arrives at its first drop-off point, Vapi, an industrial town in Gujarat. It is only 140km from Mumbai, yet the journey has taken seven hours.

Before pushing on to Ahmedabad, Mr Alange, a portly former farmer from inland Maharashtra who earns Rs10,000 a month, allows himself the brief luxury of a roadside cup of chai, half of which he pours into the saucer for the second driver.

Despite the parlous state of the roads, which are littered with the debris of head-on collisions, he does not grumble much. Asked whether he fears accidents, he invokes the spirit of a 17th century Hindu king who terrorised India 's Islamic Mughal rulers from his hilltop forts near Mumbai. "I have been driving for this company for 25 years," he says. "Until now, Chhatrapati Shivaji has protected me."

'The city will be in trouble - we'll get the blame'

In the Arabian Sea off Mumbai's western coast, a miracle of sorts is taking place. An eight-lane highway, culminating in what the contractors claim is "the world's longest, concrete cantilever cable-stayed bridge", is slowly taking shape above the choppy waters.

The Bandra-Worli Sealink, phase one of a project that will connect Mumbai's airport in the north of the city with its central business district about 30km to the south, may not be the Golden Gate. But the project - with its elegant 128-metre central tower anchoring the cables for the main bridge - is the kind of civil engineering feat more often associated with China rather than India.

The problem is the project is running over-budget and is years late. Not only that, due to clumsy government planning, when the Sealink is finished it will be in danger of becoming a white elephant.

Across India , a similar story is playing out. The central and state governments have kicked off a number of flagship projects but are in danger of squandering the benefits through a lack of planning and co-ordination.

Nowhere is the need for infrastructure more evident than in India 's cities. Goldman Sachs estimates that the percentage of urbanites will double to more than 60 per cent by 2050 - as many as 700m additional people. "The impact on infrastructure demand will be enormous, from demand for inner-city transport, water and sewerage to low-income housing," Goldman says in a report.

That means India will have to get better at implementing projects such as the Bandra-Worli Sealink. To ease congestion on the city's existing airport road, the government in 2000 commissioned Hindustan Construction, a local contractor, to build the bridge for Sealink.

But the project, today valued at Rs16.4bn ($380m), was delayed for four years by legal wrangling after a nearby fishing village objected that the highway would block its access to the sea. "We had no issue with the fishing community needing to be heard," says a Hindustan Construction official. "I'd say the real problem came down to a lack of prior planning."

With completion scheduled by mid-2009, the twin four-lane highways have already reached Worli - where they stop dead over open water, about 100m from the shoreline. The government has not yet even put out the tenderĀ for the next stage of the project, which will connect the bridge with the Haji Ali district of Mumbai, 13km to the south of Worli. Until then, the only southern access to the Bandra-Worli section will be via an exit ramp at Worli that was originally intended only for use by local traffic.

A similar problem of deficient co-ordination is playing out at nearby Mumbai International Airport. G.V. Sanjay Reddy, whose GVK Group is leading a $2.3bn refurbishment of the hub, says he is on track to upgrade capacity from 26m passengers a year to 40m by 2012.

By then, Mumbai will need a second airport to take the pressure off Mr Reddy's facility, which will have no more room to grow. But again, the government is behind schedule on putting the project out to tender. "The city is going to be in trouble. At that time, I know that everybody will blame us for something we are not responsible for, but we are heading in that direction and there's nothing we can do," says Mr Reddy.

The same concerns are echoed in Bangalore in India 's south, where a Siemens-led consortium has just opened a much-needed new airport. The authorities have failed to build efficient road and rail links connecting the airport with the city centre and Bangalore's information technology hub on the opposite side of town. It takes about three hours to travel from the airport to the campuses of the country's premier IT companies.

Worse, the government has also been wavering on key parts of the contract with the airport builders, such as a user charge and a promise to shut the city's old airport to avoid competition with the new facility.

Still, longtime investors in India such as Sir Bill Gammell, the Edinburgh-based chairman of Cairn India , the oil exploration and production group, are philosophical about the country's challenges. Sir Bill this month opened work on an oil pipeline connecting Cairn's main field in Rajasthan with refineries on the coast after a year of bureaucratic delays.

"We are going to continue to invest is India ," he says. "As long as you build relationships, you understand the reasons for things and if you ultimately have the goal, things tend to get done. You've just got to have the determination to makethem happen."

Joe Leahy
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