INFRASTRUCTURE
273. Poor infrastructure is a major constraint in
India and "risks putting India at a disadvantage against
Asian competition".[560]
Clifford Chance stated:
The massive demands and stresses on India's poor
power networks, urban infrastructure, transport and ports are
the costs of the late economic boom, and could be the brakes on
its overall growth.[561]
274. In 2003 India's spending on infrastructure was
about 3.5% of GDP, compared to over 10% in China.[562]
Power also needs more investment. More than half of India's villages
and about 40% of those who live in cities do not have electricity.
Mr Wolf, told us:
There are chronic shortages; but, even worse,
probably the biggest single source of capital inefficiency in
the private sector is the need of virtually all companies of more
than a tiny size to have their own generators. Basically, it is
a self-generation system. That is a significant overhead cost
and a huge waste of capital.[563]
Water management also needs improvement, with inter-state
tensions over water-sharing high.[564]
275. Clifford Chance told us that the Indian government
did have plans to increase spending on infrastructure by 67% over
the next three years, but that some believed "even this is
insufficient."[565]
It will therefore be very important for the Indian government
to bring the private sector into infrastructure projects. It has
already begun to do with airports and ports. Public private partnerships
in mobile phones have also been successful:
India has the largest mobile phone market in
the world, with sales growing by 2 million per month. It is estimated
there will be 250 million users by 2007.[566]
In August 2006 the government announced new plans
to reduce its 24% stake in key public sector power companies.
In October the government proposed to sell 10% of its stake in
four such companies. It later decided to dilute its stake by selling
extra shares in the companies instead, beginning with the Power
Finance Corporation.[567]
276. However, the failure of the Enron project in
Maharashtra left some in India and some outside investors sceptical
about investing in infrastructure.[568]
Mr Wolf explained to us why it was it was so difficult to invest
in the power sector:
power is a state-level issue under the Indian
constitutional arrangements as that is one of the reasons why
central Government finds it difficult to fix.[…] The fundamental
issue is pricing and in many states—I do not know the exact
proportion—the pricing is set by the state through political
and regulatory processes. Those prices would not allow a private
producer to cover costs.
In addition, […] there are staggering losses
from theft and people must have the ability to prosecute thieves
effectively through the courts or stop it happening in some other
way. Again, you need the support of state machinery to do that,
which people do not currently have.
The issues cannot be dealt with without the willingness
to confront the most powerful power pressure group in the country:
farmers.[569]
277. We recommend that the Government promotes
opportunities for investment in Indian infrastructure to UK businesses
and that it raises with the Indian government, at national and
state level, the need to reform the power sector.
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