3L series (Life long learning)
Infrastructure Development in
India with special reference to
Shri Babu Jacob
(Former Chief Secretary to GoK &
Advisor to GoK)
Basic structural foundation of a society or enterprise.
roads, bridges, sewers etc regarded as a countrys’
– have some elements of public good
– generally exhibit significant positive
– difficult to price fully to cover all
– contain elements of monopoly
*Externality (Microecon by Walter/Nicholson)
An externality is said to exist when the activities of one agent directly af f ect the utility of production possibilities of a nother
Positive and negative externalities
-India Inf rastructure Report by Rakesh Mohan 1996
– high up-front costs, long pay-back periods.
typically bulky and lumpy investments –
large initial capital, large pay-back periods,
The manner in which infrastructure
investments are selected, designed,
funded, implemented and finally operated
would impart on the quality of the services
and have major macro-economic
implications for the country
According to Tenth five year plan documents,
a) Social infrastructure – education, health
b) economic infrastructure – energy, transport
Urban Infrastructure Transport
Water Supply Roads
Sewage & Sanitation Railways
Urban Roads Ports
Solid Waste Management Inland Water
Improving Transport Services to Facilitate Economic Growth
Excessive time/money spent on moving people and goods [with annual
GDP growth of 6.0-6.5%]
Economic losses from congestion/poor roads high at [120-300 billion
rupees (equivalent to US$2.6-6.5 billion) a year].
Exports less competitive due to inefficient and unreliable transport/
India’s infrastructure, a hindrance to business [2/3 respondents of 1999 CII
Negative effects of poor transport felt by general pubic - social
isolation/traffic accidents/motor vehicle emissions.
Road Transport and Highways
Growing demand for door-to-door transport to boost road transport.
Increased demand for road transport due to the inherent competitive
advantage of road transport.
and partly due to failure of other modes, especially rail, to attract
the demand (that would otherwise be more suitable for them).
Geographic coverage of India’s highway network, [0.66 km of highway per
square km of land area] almost identical to United States’ [0.65]
and much higher than that of China (0.16), Mexico (0.16), and Brazil
Comparison very poor for India in terms of lane capacity/surface quality.
Demand for Transport and Transport Infrastructure
40% of India’s 661,000 rural villages not having all-weather access to markets and
1990s - India’s economy grew by 6 to 7 percent a year, transport demand by 10
demand to continue at 10% growth rate.
The road sector, [80 percent share of land transport demand] grew @ 12 percent
(freight) and 8 percent (passenger).
Rail transport demand growth slower at 1.4 percent (freight) and 3.6 percent
This is not surprising: all over the world, rail transport stagnates as a result of
intense competition from road.
Capacity of Infrastructure Support to expand
to meet this high transport growth demand.
Increasing demand for high-quality of services further enhances the level of
Importance of Highways
Essential for economic growth.
Trade facilitation, export growth and globalization.
Improve agricultural/industrial productivity.
Improve living standards.
Just in time inventory system, and fast service
Better private sector productivity.
Better health, education and community services.
National Highway Development Programme (NHDP)
Golden Quadrilateral (GQ) – 5846 km
North-South East-West (NSEW) – 7300 km
- fuel cess 200
- MLA assistance 200
Market borrowing 100
Addl. market borrowing 20
Re.1 /litre fuel cess = Rs.340 b in 6 years [97–98 to 02–03]
Fuel cess raised to Rs.1.50 per litre in 2003-04
to raise additional Rs. 60 billion per year, distributed as
split of 60 b /year
State highways 10
Indian railways 5
Additional new 10,000 km 4 lining of new corridors
Private sector participation 1358 km/ over 30 projects
out of total of 7595 km of 146 projects
GQ will save the economy Rs.80 b/annum
China Roads and Highways *
GDP growth ranging 15% to 8%, 1990 to 2002
Trend towards high value production
Why road? – for economic development
China’s road density low, 18.4km /100m2
Population 21.0 100
Road length 5.0 100
* Li Xinghua DDG, Ministry of Communications, PRC 11
Total length 1.76 million km. Better than 2nd
class: 250,000 km.
China is behind India, 89% road under quality
51% rural roads very poor
World’s No.1 in road accidents
Automobile production In million
2003 4, world’s 4th largest
2008 largest in world
1980s Motor cycles
1990s Motor cars
1990s - rapid increase in investment on roads
Since 1995, still greater emphasis on road development
1995-1998 highways investment doubled, equivalent to
previous 30 years investment.
27% people live in Urban areas
Higher population growth rate in Urban areas
57% of non-agro employment is provided by urban areas
Growth rate of % of
Population in million
% of Urban population perso
Total Urban Total Urban BPL
(1) (2) (3) (4) (5) (6) (7)
1971 548 109 19.91 24.8 38.23 -
1981 683 159 23.34 24.66 46.14 -
1983 - - - - - 40.79
1991 846 217 25.71 23.86 36.47 -
1993 - - - - - 32.36
2001 - 285 27.78 21.34 31.13 23.62
2021 - 550 40.00 - - -
Source: Urban Statistics Handbook 2000, NIUA
STRATEGIES AFTER 1998
Extension of highways to rural areas
Linkage to backward areas
Uniform national free way systems
Improve capacity to create new technologies,
reduce costs, increase safety.
Year Length km
170,000 km highways being built, and
3000-4000 km of expressways annually.
Special Emphasis on Urban Roads
By 2008, Beijing to have 5 ring roads
(against Tokyo planning 3 by 2011).
Government/Local body financing
Loans – National bonds 30% for road
China’s road network smaller than India’s, but it comprises over 25,000km
four/six-lane access-controlled expressways linking the major cities, all built
during the last 10 years.
No expressway linkages for major economic centers in India.
National highways are two/single/intermediate lane capacity – only 3,000 km
State highways, 1% four-lane, 22% two-lane, and rest single/intermediate lane.
other roads mostly single-lane.
A quarter surfaced with (bitumen) / concrete,
a fifth water-bound macadam
over 25% in poor surface condition,
Over 50% of state highways in poor / very poor condition.
India has 12 “major” ports (handling 76% sea-borne traffic) (2001)
and 140 non-major ports in 9 States & 4 UTs.
Aggregate capacity of major ports – 389.5 MTPA
Coastal shipping limited
Rated capacities 50-60 % lower than ports elsewhere in Asia.
Turnaround time high
Equipment use on berths low-about 30-35 percent.
Handling costs high - productivity of equipment being low.
Mother container ships (Main line vessels) not able to call at Indian ports,
adding to transport costs of exports and imports.
61% of Indian export/import containers transshipped offshore, in
Colombo, Singapore and Salalah
Cargo handling at 4 major ports (2004-05) – 383.7 MTP
A growth of 11.3%
Chennai, Mumbai, New Mangalore, Paradip, Tuticorin, Kolkata traffic
Traffic growth of major and non major ports projected high container
JNPT (established 1990) growing at 25% p.a
55% (in TEUs) of India’s container traffic through JNPT
New Mangalore (15 % p.a) and Paradip (11% p.a) also growing fast.
Non major Ports’ Share of Traffic
1991 – 92 2003 – 04
Gujarat non-major ports (60) handle 74% of non-major port traffic
Traffic through Indian Ports projected to grow 4 to 6 times in 25 years
Rail carries mostly bulk freight
such as iron, steel, grain and cement.
Non-bulk freight just 2-3% % of ton-km
With trunk highways improving, competition from road transport to intensify.
Capacity constraints faced on high-density corridors.
Dedicated freight corridors being planned between Metro Cities.
Increasing maintenance backlog publics operational efficiency down
arrears in track renewal up from 3,500 km to 12,200 km in 10 years.
Insufficient track and rolling stock maintenance accidents levels/derailing/operating
Speed of freight trains low [average of 23 km an hour,]
speed to have increased to 40-50 km an hour. (with electrification and
Sanitation - 1
According to WHO, Improved Water Supply and
adequate sanitation would give
25 to 33% fall in diarrhoeal diseases in
developing countries [4 billion cases are reported
decreased incidence of intestinal worm
infestation [10% of population resulting in
affected in developing counties],
— malnutrition, anemic & retarded growth
controlling blindness due to trachoma
Sanitation – 2
Poor hygiene & sanitation – cause of 9% of all deaths
2nd largest contributor to the burden of disease in
70% of all diseases are water-borne
A big economic burden on people
Among 180 countries, India ranks
– 133rd in water availability, and
– 120th in water quality
Water Supply in Urban areas - 70.1% coverage
Sanitation in Urban areas - 25.5% of households
do not have a latrine
Toilets connected to sewerage system in Urban areas
– 22.5 % (Rural – 1%)
Sanitation – 3
Survey of 7 major Indian cities
only 2 had fully covered UG sewerage system and
high sewage network densities.
3 have no functioning STP.
4 treat only 48-59 % of waste water
untreated water finds its way into tanks, lakes and
Trend of Urban Population - 1971-2001
Population in Growth rate of % of
Million % of Urban population pers
pop. Total Urban ons
Total Urban BPL
(1) (2) (3) (4) (5) (6) (7)
1971 21 3.4 16.24 26.29 - -
1981 25 4.7 18.74 19.24 37.89 -
1983 - - - - - 45.68
1991 29 7.6 26.39 14.32 60.17
1993-94 - - - - - 24.55
1999-00 - - - - - 20.27
2001 31 8.2 25.97 9.42 7.6 -
Poor householder’s satisfaction levels
Public transport - 73%
Water - 60%
Sanitation - 55%
Road infrastructure - 54%
Solid waste management systems- 46%
Drainage facilities - 16%
based on baseline socio-economic primary data
collected through extensive sample household
Kerala’s Cities – 1
[Thiruvananthapuram, Kollam, Kochi,
Water high priority for all households across five cities
In Thrissur the poor rank water as second priority and the
non-poor rank water as fourth priority.
The poor categories of Thiruvananthapuram and Kollam also
rank water as first priority
In Thiruvananthapuram, about 59% of households have
household water connections. But in Kollam only 14%.
54% of the poor in five cities depend on a public water
Only 18% of the poor in five cities have their own water
facility compared to 61% of the non-poor category. 28%
of the poor in five cities depend on a neighborhood facility
for water whereas only 15% of the non-poor depend on
such a facility.
Kerala’s Cities – 2
Sewerage and Sanitation
Sewerage and sanitation is ranked as the third most
desired service in all the five cities,
Proportion of households with
Own toilets – 79%
the poor in Thrissur and the non-poor in
Thiruvananthapuram ranked it as second in priority.
• Sewerage non-existent or not functioning
• Status of sanitation and sewerage poor in all
Three of the five project cities Kollam,
Thrissur and Kozhikode don not have
underground sewerage system
Thiruvananthapuram and Kochi are
inadequately covered (30-50%).
On-plot sanitation and septic tanks are not
Kerala’s Cities – 3
No city having a designed, interconnected network of
drainage channels with clear disposal points.
Urban drains poorly maintained and often blocked by
an accumulation of silt and un-collected municipal solid
waste, causing water logging and flooding in congested
The problem exacerbated by un-controlled development
and encroachment in drainage channels and ineffective
maintenance of the drainage/ sanitation facilities.
Status of urban population in terms of
basic services: 1991
Households with - Existing situation in urban areas (%)
Pucca structures 69.10 72.75
Semi-pucca structures 14.90 17.69
Kutcha structures 16.00 09.56
Access to electricity 67.70 75.12
Access to safe drinking
Access to toilets 72.70 64.00
Citizen perception of Infrastructure priorities
Priorities Categories Water Drainage Sewerage SWD Road
Poor 1 2 3 4 5
Non poor 4 1 2 3 5
Poor 1 2 3 4 5
Non poor 3 1 3 2 4
Poor 1 2 3 4 5
Non poor 1 2 3 4 5
Poor 4 1 2 3 5
Non poor 2 1 3 3 4
Poor 1 2 3 4 4
Non poor 1 2 3 4 4
Municipal Accounting systems
ULBs need a blend of Government and
commercial (enterprise) accounting systems
modern municipal financial accounting
system being followed internationally
Current practice in Indian ULBs –
Only captures inflow and expense of cash
Does not capture information on
financial position and debt servicing capability
asset – liability profile and efficiency
Consequently, Risk – return profile of Municipal bond
cannot be estimated
Capital budgeting mechanism also absent
Revamping Municipal Accounting System
Institution of Chartered Accountants of India (ICAI) has
issued technical specifications for a new double-entry
based accounting system for Municipal bodies.
Most State Governments yet to implement.
All Municipal bodies (5 city corporation + 102
municipalities) converted from single entry cash based
accounting system to double entry accrual based
done in 3 years (1998 – 2001)
Third phase : conversion to fund based accounting
system i.e. wedlocking between budget code and
account code items.
secondary markets to be created to facilitate cost
analysis and cost at micro level
Financing ULBs for Urban Infrastructure
50% country’s GDP is from urban areas
ULB revenues = 4.6% of Central revenue
= 8% of State’s revenue
= 0.6% of GDP
Urban Infrastructure – Funding Requirement estimated at
US$43 billion over 5 years (Rakesh Mohan Committee)
Municipal bonds (MBs), the primary source of finance of ULBs
In India, of approximate 3700 ULBs, only 50 are credit –
worthy enough to access domestic capital markets.
The proposed Pooled Finance Development Scheme (PFDS) to
support States to establish pooled financing structure
- To give credit enhancement
Securitization of future flows
a means of raising affordable –sustainable finance for Local
US AID’s Financial Institution Reforms & Expansion (FIRE)
Project is working with Government of India to set up State
level pooled finance mechanism for small and medium ULBs
to access capital markets
Item Revenue Capital
receipts 37.2 14.2
expenditure 28.5 16.5
surplus 8.7 (2.2)
City Corporation Revenues Thrissur
Year 2002-2003 receipts 18.8 20.3
expenditure 13.4 11.9
surplus 5.4 8.4
receipts 24.9 13.2
expenditure 19.3 8.6
surplus 5.6 4.6
receipts 9.2 9.1
expenditure 7.5 10.0
surplus 1.7 (1.0)
receipts 51.2 46.6
expenditure 26.6 37.2
surplus 24.7 9.4
In 2001 Government of India announced this scheme
of tax free MBs for infrastructure development
-compulsory credit rating Amended IT Act 1961)
- Minimum maturity 5 years exempted interest from
bonds of MBs from IT
Only 11 ULBs have come forward to borrow a total of
First tax free MB issued by Ahamadabad Municipal
Corporation (1998) – Rs. 100 cr.
for water supply sanitation project
first Municipal bond without a state guarantee
first fully market based system of local government finance.
Second bond by Hyderabad (2002) – Rs.82.5 cr. 7 year tenor,
Bonds since issued [Without State Government Guarantee]
TN Water & Sanitation Pooled Fund
Rs.30.4 cr for 14 municipalities raised
through pooled finance mechanism
Only issue of its kind in Asia to finance
small Water & Sanitation Projects
9.2% annual interest rate
15 year maturity
15 year equal annual redemption
puttable at 10 years
Multi Layered Credit Enhancement
Each ULB to set apart monthly payment equal to
1/9 of annual payments into escrow account and
transfer to WSPF in 10th month
WSPF can intercept State transfer payments
2nd change: Bond Service Fund (BSF)
a State funded Rs.6.9 cr reserve fund = 1.5 times
annual debt service
Third level of security
US AID guarantee of 50% of bonds principal
through DCA (Development Credit Authority) to
replenish BSF if needed. The issue was privately
Escrow mechanism has Government guarantee
The Kerala Transport Project
A Strategic Option Study (SOS) on road network of 5,700 km
SOS identified 2,810 km of high priority roads
Feasibility study of the technical, environmental and social aspects
of the selected roads
Analysis of feasibility to establish economic return for upgrading
600 km identified out of 2810 kms for upgrading plus 1000 km for
Contract No. Section Length (km)
Phase – 1
KSTP – 1 NH 47 - Taikod-Kottarakkara-Chenganur-Alappuzha- 127.1
KSTP – 3 Angamali-Muvattupuzha-Thodupuzha 49.2
KSTP – 4 Palakkad-Shornur/Thrissur-Kuttpuram 78.4
IWT –1 Pilot inland waterways upgrading – Kuttanad area 93.0
Total phase I 254.7
Phase – 2
KSTP – 5 Pilathara-Pappinissery/Kasargod-Kanhangad/Thalaserry- 102.9
KSTP – 6 Chengannur-Ettumanoor-Muvattupuzha 90.0
KSTP – 7 Punalur-Ponkunnam-Thodupuzha 131.3 40
Total (Phase 1 + Phase 2) 578.9
Navigation length of 14,500 km of rivers and canals
Inland water transport very limited, and declining in many states.
Only 5,200 km of major rivers and 485 km of canals currently suitable for