Economic Survey 2011: Growth in critical core sectors slows

In the first seven months of 2010-11, India’s mobile phone connections grew at a smart 27%, but the growth of critical infrastructure sectors like coal, railway freight and electricity slowed to a crawl. More worryingly, highway development, touted as a key growth driver, actually shrank, with those being overseen by highway regulator NHAI slumping by as much as a third. These are the major takeaways from the economic annual survey, released on Friday.

In the mid-2000s, earnings from railway freight grew at 9%-plus rates as demand for things like coal and iron ore from China drove packed freight cars from pitheads to ports. With Chinese demand slowing and domestic demand unable to take up the slack, freight growth has slowed to a little more than 3%.

While electricity generation grew 4.6%, demand for power grew faster, at 6%. The Survey points out that on a global scale, India ranks among top performers like Chile and Brazil, with bigger states like Andhra Pradesh, Gujarat, Madhya Pradesh, Maharashtra and West Bengal doing better than others. But a lot remains to be done to improve regulation and distribution, create competition in supplying power and get electricity pricing right.Many Indian states subsidise farm electricity, leading to inadequate and sporadic supply. Power for industry and commerce are priced higher. On average, the survey says, a unit of electricity is priced at 8 cents locally, much lower than the 12-15 cents for countries like the US, Canada and South Africa.

Over 80% of India’s power is generated using coal as fuel. So, a related headache is the sheer fall in the growth of coal production, from 8% in 2009-10 to 0.8% in the first seven months of this fiscal. The Survey blames this on tighter environmental regulation. The environment ministry has stopped all activity in areas that are forested.

The biggest concern in the infrastructure space is the underperformance of the roads and highways sector. Former highway minister Kamal Nath used to boast that he’d speed up road construction to 20 km a day, or more than 7,000 km in a year. But reality falls far short of this: till November last year, only about a quarter of the 55,448 km of highways have been completed.

The Survey doesn’t explicitly say why this has happened, but there’s a clue in a box in the Survey. This marks out the subsidy of up to 40% of project cost that developers now claim upfront from the government as the culprit.

“It has been seen that some developers make so much profit at the start of the project because of the 40% viability gap funding that they do not, after that, take adequate interest in maintaining the highways,” the Survey says.