‘The Economist's Adam Roberts on India's economy’

India’s economy is booming, though its infrastructure is woeful. This creates many opportunities to jump on board the juggernaut but gains will be slow in coming

Take almost any measure and India’s rise looks unstoppable. Its population will surpass China’s in a couple of decades. Rapid GDP growth – expect eight per cent or more in the coming year – has set it on course to be the planet’s third-largest economy in the foreseeable future. Its diplomatic heft is increasing: it is now a temporary member of the UN Security Council and a permanent spot will follow one day. It is home to dozens of dollar billionaires, a booming middle class and some huge companies with global reach. Not only that, its cricketers are world champions. But where India fails is in wearily familiar territory: its rotten roads, crowded ports, unreliable energy supply, jammed up rail tracks and crumbling cities. Investors say that frustration with broken and overused infrastructure is their number one problem. Plant operators cannot rely on a steady supply of electricity; potholed, half-rebuilt, single-lane highways make trading goods slow and costly. Tourists shy away, anxious about public health and getting around safely, and locals are spooked by reports of “superbugs” in Delhi’s overwhelmed public water system. India aspires to be a great power, but much of its infrastructure is worse than parts of Africa. The Economist Intelligence Unit’s most recent study of the subject ranked India a miserable 75th out of 82 nations for the quality of infrastructure. Embarrassing showpiece failures – notably crumbling stadiums and a collapsed bridge in the 2010 Commonwealth Games in Delhi – damage the national reputation. Poor agricultural logistics mean chronic difficulties getting fresh goods from farm gates to consumers’ kitchens, which causes massive wastage. But not all the news is bad. The government plans to spend $1trn (nearly half to be raised by the private sector, local and foreign) on infrastructure between 2012 and 2017. Liberalisation has brought real gains. India’s privately run airports and competitive airlines have become the great transport success of recent years. Delhi, Mumbai and several other cities now have world-class terminals. Delhi, too, saw its high-speed airport train open earlier this year, which connects to a well-run, air-conditioned city metro. In the next few years other large cities across India will add their own metro rail networks. More often than not private contractors, in partnership with the government, do the heavy lifting. A competitive market for private mobile-phone operators has followed huge investments and the rolling out of 2G and 3G spectrum. Internet access lags far behind most countries, so expect a big boost in spending there. And look, too, for a big rise in spending on farming – especially if foreign retailers such as Walmart or Tesco are allowed to get logistics chains and supermarkets running. Where matters are less obviously rosy is in old-fashioned areas, such as roads, railways and ports. The government recently eased restrictions on foreign capital being loaned in this area. It wants the private sector to help build massive new highways – the aim is for 10km of new roads to be built each day (half the value of an old target that proved impossible to reach). One such road will form an immense industrial corridor stretching from Delhi to Mumbai, the commercial capital. Progress, however, may be slow. Getting access to land is perennially difficult in India’s messy democracy (by contrast, China’s government can more easily order that land be set aside for factories or high-speed train tracks). Corruption among contractors and local officials, plus will-sapping bureaucracy, all deter investors. And much-needed policy reforms are slow in coming. But, like a juggernaut, getting something as massive as India to move is bound to be a slow process.

19/05/2011

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