UNIT-I
Infrastructure: Definitions of infrastructure, Governing Features, Historical overview of
Infrastructuredevelopment in India, Infrastructure Organizations&Systems Introduction.
Introduction
• Infrastructure is the fundamental facilities and systems serving a country, city, or other
area, including the services and facilities necessary for its economy to [Link] is
composed of public and private physical improvements such as roads, bridges, tunnels, water
supply, sewers, electricalgrids, telecommunications (including Internet
connectivityand broadband speeds). In general, it has also been defined as "the physical
components of interrelated systems providing commodities and services essential to enable,
sustain, or enhance societal living conditions .
Projectshaveamajorroletoplayintheeconomicdevelopmentofacountry.
Sincetheintroductionofplanninginoureconomy,wehavebeeninvestinglargeamount of money in
projects related to industry, minerals, power, transportation, irrigation,
[Link]-economicconditionsofthepeople.
Theseprojectsaredesignedwiththeaimofefficientmanagement,earningadequate return to
provide for future development with their own resources. But experience shows that there are
several shortcomings in the ultimate success of achieving the objectives of the
proposedproject.
Infrastructure organization and system
To take part you must be employed by or volunteer for a local or regional infrastructure
organization. By infrastructure organization, we mean civil society (third sector) organizations
whose main or only purpose is to support the work of other groups in the local voluntary and
community sector. This purpose will usually appear in the governing document of your
organization or will be apparent from the work you have carried out. If supporting other
organizations is not an explicit purpose in your governing document doing such work must be
within the scope of the work your governing document allows you to do. Your infrastructure
organization can be a registered charity a voluntary and community unincorporated charitable
association a community benefit society registered as an industrial and provident society a
community interest company an organization of another type if you operate as a social
enterprise and principally reinvest your surpluses for social benefit You are not eligible if your
organization is a statutory organization such as a school or local authority, including
statutoryorganizations that have charitable status your work and services provided are solely
for individuals an individual or sole trader make a surplus or profit which is not principally
reinvested for social benefit are applying on behalf of another organization.
An infrastructure organization generally have a number of key functions (e.g. from GAVCA) to
enable the voluntary/community sector to identify, and appropriately meet, unmet needs and
gaps in service provision (Development). To enhance the capacity of the voluntary and
community sector by providing and promoting technical and practical support services
(Support).To encourage networking, enabling the voluntary/community sector to share
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knowledge, information and skills, and to promote liaison between the voluntary, public and
private sectors (Liaison). To ensure effective and accountable representation of voluntary and
community sectorviews and interests (Representation). To broker an effective role for the
voluntary/community sector at a strategic level (Strategic Partnerships). Examples of
infrastructure organizations include a local CVS, a volunteer centre, local Voluntary Action
provider or specialist local support and development organization.
Governing Features of Infrastructure
Natural Monopoly
Whe o e fir a pote tially supply arket’s e tire de a d for goods and services at most
efficient price, it is said to exist natural monopoly. When the fixed costs become so large that
only one firm can feasibly operate, and the average costs continue to fall over the entire range
of production, the one firm will emerge as natural monopoly The production of certain goods
and services are subject to scale economies- like Infrastructure facilities. The production of
infrastructure facilities (like railways, electricity, telecommunications, gas-pipelines and other
public-utilities) require a certain minimum scale of production. Natural Monopoly is often
viewed as market-failure.
Sunk Costs
The expenditures that has already made and cannot be recovered even when the firm go out of
business is called Sunk costs,it may be a barrier to entry into infrastructure development
projects for private investors. If sunk costs are high relative to marginal cost, price will almost
surely exceed marginal cost, even though economic profits are [Link] costs should not be
considered for future investments decisions Examples: telecommunication towers, sewerage,
railways etc. have high sunk costs.
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Non-Tradability of Output
Infrastructure output is the services that are evoked from the use of particular infrastructure
facility. Thus the characteristics of services are equally applicable to infrastructure: intangible
nature and non-tradability. This means that infrastructure services must be consumed or
purchasedat the place they are produced. These services generally cannot be transported (with
some exceptions). This characteristic has significant policy implications, because the viability of
a particular infrastructure establishment has little role to play. For instance: roads, railways,
bridges, airports etc. cannot be transported .
Non-Rival Consumption
Consumption by an individual does not affect the consumption by others. Thus an additional
consumer can enjoy the benefits of consuming a good or service without conflicting the
benefits of others. Zero marginal cost of providing the benefits of a good to an additional
consumer. For instance: roads and telecommunication.
Price Exclusion
The benefits will be provided only to those who pay for the services/goods price exclusion is a
feature of private [Link], in the case of infrastructure, it will be very difficult to recover the
costs of providing the facilities thus, pricing of infrastructure facilities are not regulated through
market forces.
Externalities
Externalities are the spillover effects (costs or benefits) that are not included in the prices and
accrue to other (third) parties than those involved in the transaction. For instance: health and
education. Externalities are said to exist when production or consumption of an entity affect
the productivity or well being of another entity. Two conditions are necessary for an externality
1. Interdependence between economic entities
2. Non-compensation for the effects of interdependence
Two types of Externality:
a) Positive externality b) Negative Externality
Infrastructure development in India
An analysis of the previous and present government plans reveal that Energy
Security and Improving Connectivity (both physical and virtual) are emerging as the two major
areas of infrastructure development in India. Recently, there has been a significant drive to
emphasize on urban infrastructure (metro rail systems, sanitation, bus rapid transport systems,
waste management and urban roads), renewable energy and connectivity (ports, railways).
Addressing these needs as well as the backlog that already exists in infrastructure development
will be the prime focus for both the public and private sectors in the coming years.
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The 12th Five Year Plan of the Government of India mentions a need for Rs. 56.3 trillion (about
$ 1 trillion) for development of infrastructure. From the Five Year Plan, it can be noted (Figure
1) that the highest level of investment is planned in the Power, Roads, Telecom and Railway
sectors.
As can be seen from Figure 2, traditionally, greatest private participation in infrastructure
development in India has been confined to the development of Roads, Urban Infrastructure,
Power and Ports. Most Urban Infrastructure projects have been involved in building roads or
commercial and residential complexes.
Roads have seen the greatest amount of investment in PPP mode since 2000. This is primarily
because projects in Roads generally take lesser time, and the National Highway Authority of
India prefers PPP as the preferred mode of investment in projects.
Incidentally, Roads, Power and Ports are the sectors that have allowed Foreign Direct
Investment (FDI) since the mid-1990s and the financing of this infrastructure development has
been carried out with active participation from both the public and private sector.
However, there is a changing need in the market, and evolving requirements of the population,
which seems to be driving infrastructure development towards sectors that have primarily been
the responsibility of the public sector. These sectors include areas like Urban Infrastructure
(metro rail systems, sanitation, bus rapid transport systems and urban roads), Railways and
Renewable Energy.
PPP investment in Urban Infrastructure to grow by 400%
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Shows a snapshot of infrastructure projects that have already been completed, are under
construction and are in the pipeline in various infrastructure sectors. Power projects have seen
a drop in projects in the pipeline, as compared to projects that have been undertaken in the
past. According to market source, issues plaguing the power sector as a whole, like coal block
allocations lead to a large number of non-performing assets and are the primary reason behind
a slowdown of investment in the power sector.
It is the sector of Urban Infrastructure which is expecting unprecedented growth in the amount
of investment that has already been approved and is currently waiting for deployment (due to
clearances, land acquisition, etc.). Urban Infrastructure presents the most striking contrast
while comparing levels of past and future investments that are in the pipeline. Indian cities
today are ursti g at their sea s Delhi’s populatio has gro fro .4 illio i to .
million in 2011, nearly doubling in 20 years) and do not have the necessary infrastructure to
cater to the needs of the increasing population density. Building adequate roads, flyovers, and
more importantly, Mass Transit systems are on top of the priority lists of most state
governments today. Another possible reason for this large spike in planned investment when
comparing to investment that has already taken place, is that in many cases, Indian cities did
not have adequate infrastructure to begin with. For example, out of the eight cities in India that
have populations greater than 5 million (Delhi, Mumbai, Chennai, Kolkata, Bangalore,
Hyderabad, Ahmadabad, Pune) only two have a functioning Metro Rail System. Urban
infrastructure therefore emerges as the need of the hour.
Railways is the other sector in which the planned private sector investment as compared to the
previously deployed investment is about to grow multi-fold in the near [Link] though the
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Five Year Plan was formulated during the reign of the previous UPA government and Modi’s
NDA government may seem to have a starkly different outlook from their predecessors,
interestingly, most of their thrust areas of infrastructure development continue to remain the
same- Railways, Urban Infrastructure and Renewable Energy. However, there is a realignment
of the role of the private sector in some areas. Already, telecommunications which had only a
41% share of Private investment planned during the Eleventh Plan Period has a 92% during the
Twelfth Plan Period.
Public Funded Infrastructure Sectors to undergo major transformation
To meet the projected cost of developing this infrastructure, the Twelfth Plan suggests that
48% of the investment needs to come from the Private Sector, a significant increase from the
32% during the Eleventh Plan [Link] the past 6 months, one of the most significant policy
changes has been the introduction of 100% FDI in Railways.
Previously, the introduction of 100% FDI in Telecommunications coincided with
Telecommunications shifting from a sector that had comparable share of private and public
fu di g 4 % pri ate fu di g duri g the Ele e th Pla Period to a Predo i a tly Pri ate
“e tor fu ded se tor % pri ate fu di g duri g the T elfth Pla [Link] similar
may happen in the Railways sector too. In fact, if the proposed plan for the introduction of
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bullet trains goes ahead, this sector might see much larger investment from the private sector
than the public sector.
Other government pet projects involve ambitious plans for de elopi g “ art Cities ,
reaching 100 GW of Solar Energy Generation by 2019, creation of a Digital India, encouraging
i frastru ture i Ports u der the “agar Mala s he e a d the Make i I dia Ca paig .
From the above data, it is clear that the two greatest areas of focus for the present government
are
Energy Security
Improving Connectivity (both physical and virtual)
Water is still not seen as a priority area or as a component of Energy Security
I dia has % of the orld’s populatio a d o ly 4% of the water. Already, India is a
water-stressed state and it is expected to become a water-scarce nation by 2030.
However, India does not recognize water security as a major concern yet.
India needs to realize that even Energy security is heavily dependent on water security.
Thermal and Nuclear power plants are the largest consumers of water in the industry
and cannot operate without adequate water supply. Hydroelectric power generation is
almost completely dependent on water availability. Despite that, water is not receiving
its due importance in the present plans.
A possible solution to this is encouraging the use of drip irrigation, which can be 80%
less water intensive than flood irrigation, since agriculture accounts for roughly 80% of
water use in the country.
On the industrial front, Zero Liquid Discharge systems could prevent further pollution of
existing water bodies as well as reduce water consumption. Already, the government
has embarked upon a pilot project to introduce Zero Liquid Discharge plants in 45
factories along the banks of the Yamuna to study the impact.
There are plans for linking all major ports to railways and mining hubs to facilitate
smoother transport of coal as well as industrial freight. This is directly linked to the
government’s ai to a hie e e ergy se urity y i pro i g o e e t of oal a d oil.
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