The Infrastructure Sector in India, 2001–2 65
3 THE INFRASTRUCTURE SECTOR IN
INDIA, 2001–2
Anupam B. Rastogi
There is no doubt about the need for better roads, ports,
telecommunications, and timely electricity in India. The
agenda of privatization of these and other infrastructural
services has made steady, though slow, progress. Some sectors
have seen major progress being made this year, while in
some others, the expected changes did not materialize, and
things are virtually at a standstill.
An enhancement in telecom services is evident in almost
every corner of the country. Improvements in the national
and state highways can be observed and there is an urgency
to provide both better roads within urban places as well as
all-weather connectivity to the villages. Ports, airports and
multi-modal transport have also shown improvement.
Though services provided by railways seem to have changed
little, passenger tariffs have increased. Perhaps this marks
the beginning of a gradual movement towards rational tariffs.
In the power sector, deteriorating services have subjected
consumers to much stress. Most of the private projects that
were either proposed or set up to produce electricity in the
1990s have been folded up and investors have left. The
urban infrastructure is yet to provide the much-awaited
benefits to the harried urban dweller. A healthy competition
has begun among the states to provide better infrastructure
in order to attract more investments, which, unlike sales tax
concessions, is a positive sum game.
The following sections of this chapter provide a review
of the developments made during the year in the principal
sectors that constitute infrastructure.
Author is thankful to Partha Mukhopadhyay, Nirmal Mohanty,
Sri Kumar Tadimalla and Saugata Bhattacharya for their comments.
Views expressed in the article are author’s personal views.
TELECOM
The sector has witnessed a continual fall in tariffs, due to
a combination of advanced technology and competition.
Rapid advancement in technology is bringing down costs
for the service providers, and the increase in competition
makes sure that the benefits of lower cost find their way to
the consumers.
The much-awaited reduction in long-distance rates for
both fixed-line and mobile calls materialized last year. Below
a critical price level, the demand for a telephone is highly
elastic. Phone companies may well make up lost revenues
over a period of time from the increased volumes in sale.
For example, in some cities, owners of even small enterprises,
including auto-rickshaw operators and ‘paan-wallas’, have
started using mobile phones.
Users were paying Rs 12 per minute for a cellular mobile
telephone call in 1996. It came down to Rs 8 by 2000, and
prices then fell further after the Telecom Regulatory Authority
of India’s (TRAI) price order. The entry of third-operator
telecom companies made this inevitable. In many parts of
Europe, South Korea and Japan mobile telephones
outnumber fixed-line phones. In India too, we are witnessing
a faster growth of mobile-telephone connections.
The rapid growth of the sector has encouraged the
government to revise the target of teledensity from the
projected 7.5 per cent to 10 per cent in 2005 and from 15
per cent to 50 per cent in 2010. Even the existing target
till 2010 requires an investment of around US $65 billion.
The revised target would raise the fund requirement to
around US $150 billion. Between August 1991 and May
2002, the telecom sector attracted foreign direct investment
(FDI) inflow of Rs 9230 crore (US $1.88 billion). These
are stupendous but achievable figures, given network
66 India Infrastructure Report 2003
economies and falling prices. Network economies are
expected to drive demand northwards, as the ‘cost’ of not
being a part of the community of telephone users becomes
large, even for the lower middle class. To take advantage of
this phenomenon, strategic pricing to expand their own
networks would be the principal aspect of the competition
in the years to come.
The private sector gained further ground with the
government divesting 25 per cent of its stake, and ceding
management control in Videsh Sanchar Nigam Ltd. (VSNL)
to the Tatas. Bharti Tele-ventures Ltd., the holding company
of the Bharti Group, successfully made its initial public
offering of Rs 834 crore in March 2002. The Disinvestment
Commission has initiated work on the modalities of
disinvestment in the government-owned Mahanagar
Telephone Nigam Ltd. (MTNL). Foreign telecom-service
providers like British Telecommunication and Telia have folded
up their joint ventures and now only four major international
players remain—Singapore Telecom, Hutchison, France
Telecom, and AT&T.
With a view to encourage mergers and acquisitions in the
telecom-services sector, government companies in this sector
are now free to carry forward their losses for deduction under
Section 80-IA of the Income Tax Act of 1961 and set off
past losses for companies which are acquired and merged.
Basic Service Operators
The Basic Service Operators (BSOs) are finding their profit
margins squeezed as competition in the national long distance
(NLD) market is increasing. BSOs receive a share of these
call charges for delivery to the end-subscriber in their
respective circles of operation. BSOs have petitioned the
TRAI to plug these revenue losses and compensate them
through Access Deficit Charges (ADC) to help them recover
the capex and operating expenditure. Since NLD operators
are presently working on a cost-plus model, the revenue
share should be earmarked in such a manner that the access
deficit is compensated in totality to both the originator and
the terminator of calls. BSOs have argued that even after
a comprehensive tariff review, given the socio-economic
conditions of the country, there will not be a major increase
in rentals and local-call charges. They would have to provide
services at below cost price in a few circles. They are of the
opinion that TRAI should come out with its determination
on ADC which would make the BSO projects financially
viable.
BSOs are pinning their hopes on wireless in local loop
(WLL) roll-out. Basic telecom licences allow the operators
to provide mobile telephone services based on Code Division
Multiple Access (CDMA) technology. However, the mobility
is restricted to a Short Distance Charging Area (SDCA). In
the event of shifting from one SDCA to another SDCA,
the facility of carry-forward is not allowed. Boundaries of
an SDCA generally coincide with the boundaries of a tehsil.
Cities such as Delhi, Mumbai, Chennai, Kolkata and
Ahmedabad fall under one SDCA.
WLL services are popular among subscribers. More than
2 lakh subscribers use mobile phones on CDMA-based
WLL networks. The plans set up for the growth of limited-
mobility phones by Bharat Sanchar Nigam Ltd. (BSNL),
MTNL as well as private sector basic telecom operators are
spectacular and reflect the popularity of limited mobility.
MTNL plans to add 50,000 lines each in Delhi and Mumbai
to take the capacity to 1 lakh lines in both the metros by
the beginning of 2003. Other BSOs also have ambitious
roll-out plans for WLL. BSNL proposes to clear the waiting
list in all major cities by providing connections to 95 per
cent of the applicants using WLL technology.
BSNL is in the process of shifting over to commercial
accounting from government accounting which should allow
ascertaining costs of different services provided by it. This
would help the regulator to identify instances of cross-
subsidization of services and strengthen its capacity to provide
regulatory supervision in an increasingly competitive telecom
market.
National Long Distance and International Long
Distance
While subscribers can certainly look forward to further
revisions in Subscriber Trunk Dialling (STD) tariffs across
different distance slabs, the lack of clear-cut guidelines with
respect to interconnection agreements for NLD services
would also mean a corresponding decline in the revenues
of BSOs who receive a share of these call charges for delivery
to the end-subscriber in their respective circles of operation.
Until recently, with higher long-distance tariffs, the
revenue earned in all the circles by BSOs was enough to
cross-subsidize their loss-making circles. However, with the
decline in STD tariffs, BSOs, especially the incumbent
operators, will no longer be able to cross-subsidize the loss-
making circles and may be forced to hike rentals and local-
call charges. Since TRAI has not set any specific guidelines
for the exact share of revenue between the originator, the
carrier and the terminator, BSOs fear that they will be
forced to reach unfavourable interconnect agreements with
NLD operators.
Cellular Mobile Telephone Services
On an average, a cellular mobile phone user today pays Rs
2 per minute for airtime and Rs 200 as monthly rent. Most
of the circles have three service providers and the fourth
operator is waiting in the wings. The cellular telecom market
is quite competitive in most of the circles now.

The Cellular Operators Association of India (COAI) is
already complaining of excessive competition. The heat of
competition has forced Cellular Mobile Telephone Service
(CMTS) providers to take legal recourse to stop WLL services
roll-out from using technology that is comparable to that
of CMTS. The dispute is whether or not BSOs should be
made to use the software (supported by hardware) called
V5.2 that will limit the mobility of their services to a single
SDCA. The CMTS providers argue that if fixed-line
operators are allowed to use other software, they will be able
to offer a host of services, such as roaming, that are now
offered by CMTS providers, apart from being able to offer
virtually unlimited mobility. That would blur the distinction
between WLL and regular cellphone services. However,
some independent analysts believe that both WLL and
regular cellphone services can co-exist since the market is
set to grow at a compounded annual rate of nearly 70 per
cent for the next two or three years.
As competition warms up in the Indian telecom sector,
one by one, all the barriers to mobility, like charges for
incoming calls and roaming charges, are being removed. So
far, only AirTel and Hutchison have announced that all
their subscribers across India would have free incoming
calls. Others are expected to follow suit. Already the number
of new cellular mobile telephone connections far exceeds
that of fixed-line connections.
Internet Telephony
Net4india has launched 500 Voice over Internet Protocol
(VoIP) centres to carry international traffic through VoIP.
These VoIP centres would be like Public Call Offices (PCOs)
from where international calls can be made at Rs 5 per
minute. Each such PCO is to be provided with two handsets
and 16 × 2 KBPS dedicated connectivity for this purpose.
BSNL is also setting up a VoIP network connecting six
cities—Ahmedabad, Bangalore, Chennai, Delhi, Kolkata
and Pune. The project is going to test the quality of VoIP-
based services and is expected to be completed by the end
of 2002. Cost of STD calls through VoIP network from one
of the six cities to another is expected to be much lower
than that through conventional switched networks.
Convergence
The recommendations of the Standing Committee on
Information Technology (IT) on the Convergence Bill may
well make it to Parliament during the winter session of 2002.
The Convergence Bill takes cognizance of the convergence
of voice and data (telecom, broadcasting and Internet) and
seeks to set up a single super regulator—Communications
Commission of India—for these sectors as a whole. The
current TRAI would then integrate into the super regulator.
The Infrastructure Sector in India, 2001–2 67
The Draft Bill also seeks to change the licensing regime
and limit the number of licence categories to five—network
infrastructure facilities, networking services, network
application services, content application services, and value-
added network application services. However, it is still not
clear how the existing licencees will be accommodated within
the new regime.
TRAI has made recommendations to the government to
suo-moto have a separate category of licence for ‘Receive
only Very Small Aperture Terminals’ (RVSATs). Generally,
VSAT services are meant for two-way communications and
the main users in the country are banks, stock exchanges
and corporates. The purpose of RVSAT is to provide services
such as tele-education, tele-medicine and newspaper online
to remote areas in the country and, thus, help in bridging
the digital divide between the rural and the urban areas in
the country.
Instead of individual licences a class licence is to be given
to the activity that uses RVSATs for this targeted broadcast.
A class licence establishes a set of general conditions which
are widely publicized among the class of service providers
or companies concerned. Any service provider or company
that complies with the terms and conditions can participate
in the activities under the class licence. Interestingly, RVSAT
will be closer to broadcasting than telecommunication.
BSNL has launched ‘fibre-to-home’ services through its
broadband-access network initiative in Hyderabad. The
‘fibre-to-home’ project will bring greater bandwidth to
customers, including software companies, corporates and
educational institutions. It has also launched its portal—
www.bsnl.in—which will ultimately enable online
transactions. It is negotiating with banks and other
institutions to facilitate online payment of bills.
Regulatory Developments
During the past year, TRAI has introduced some important
regulations and recommendations and consulted all
stakeholders through its consultation papers. TRAI issued
regulations on Reference Interconnection Offer (RIO) and
Interconnection (Charges and Revenue Sharing). It made
recommendations to the government on introduction of
Internet Telephony, on opening up of the International
Long Distance (ILD) service and on Universal Service
Obligation (USO). It issued consultation papers on Tariffs
for Cellular Mobile Telephone Service, RIO, and Issues
Relating to Interconnections between Access Providers and
National Long Distance Operators, Introduction of Internet
Telephony, International Long Distance Services and
determination of Cost-based Rental for WLL with Limited
Mobility.
In order to avoid delays in interconnection between the
networks of various telecom operators, TRAI has mandated
68 India Infrastructure Report 2003
all service providers holding over 30 per cent market share
in their respective sectors to publish an RIO within three
months. The RIO would be based on the model RIO
notified by TRAI and would be approved by it prior to
being published.
TRAI’s recommendation of unlimited competition in
the ILD service sector was accepted by the government. A
one-time entry fee of Rs 25 crore and an unconditional
bank guarantee of Rs 25 crore for fulfilling the stipulated
roll-out conditions are the low entry barriers proposed to
enable new operators to enter the sector. VSNL was the
incumbent ILD operator and has now been joined by Bharti
Telesonics. Bharti Telesonics tariff rates are much lower than
the VSNL rates but similar reductions from the incumbent
are expected soon. From December 2003, most of the
country’s telephone subscribers will be able to choose their
ILD and NLD carriers.
TRAI has directed CMTS operators not to charge their
customers any entry fee for national roaming services. It has
stipulated a Rs 100 monthly access-charge ceiling for regional
and national roaming, and has also capped roaming airtime
at Rs 3 per minute since March 2002.
TRAI took another path-breaking step in August 2002.
It made public the report of a survey conducted by it on
the quality of service provided by BSOs and CMTS operators
(TRAI, 2002d). The survey conducted between October
and December 2001, found that the eight BSOs in 25
circles have not been able to meet the quality of service
norms as laid down by TRAI. CMTS providers too did not
meet the standards but compared to BSOs, they have done
better on criteria such as customer-reported faults, billing
complaints, percentage calls dropped during conversation
and percentage calls with good voice quality.
Main Issues
Interconnection: There are technical, physical and economic
issues of concern here. However, transparent and non-
discriminatory interconnection is essential for successful
competition. TRAI has repeatedly stressed on interconnection
as the key to determining the feasibility and economic
efficiency. It has issued regulation on RIO, but the
implementation of the rules has been slow. The key issue
is about the charges for interconnection which would be fair
to new entrants. Given network economies, the incumbent
continues to be in a privileged position. New entrants bear
the risk of not being able to reach critical minimum numbers
of subscribers or size of business, and an efficient
interconnection regime should, therefore, emphasize the
reduction of entry barriers for entrants. Hence, the regulator
should increasingly focus on access conditions as well as
access charges.
Calling Party Pays: In October 2001 TRAI appointed a
consultant to work out the cost for introducing calling party
pays (CPP) regime for cellular operators. Public hearings
were held soon after that and TRAI is yet to send its
recommendations to the government. That the introduction
of limited mobility services (LMS) through WLL would
impact the profitability of the cellular operators is well
known. The business of WLL and CPP is intricately linked
and as regulatory initiatives on WLL has moved at a much
faster pace than on CPP, many cellular operators have
questioned the independence of the regulator. There is little
doubt that WLL will help the incumbent BSOs substantially.
But the logic of CPP, which had validity when there were
substantial cost differences between cellular and land lines,
weakens as the price gap closes. The need to square the
licence conditions between BSO and cellular operators would
remain.
TRANSPORT
Roads
Apart from accelerated roll-out of the National Highway
Development Programme (NHDP), a significant new factor
in the financing of roads is the use of annuities in Build,
Operate and Transfer (BOT) projects. BOTs were so far
done on ‘tolls’ basis. Under an annuity scheme a project
developer is paid the annuity over the concession period
only when the independent engineer of the project certifies
that the quality of service available to road users is in line
with the concession agreement. This is one immediate
solution to the long-term maintenance problem which has
been the bane of roads in India. For roads such as the key
national highways where demand is not expected to be a
problem, annuities are socially optimal and easy to
administer, and take into account the much-neglected
maintenance need. For the first time emphasis is being laid
upon the continuous maintenance of highways and private-
sector participation is being encouraged in financing
construction of roads which includes cost of maintaining
roads over the concession period or a predetermined period
given in the concession.
National Highways
In the last couple of years, there has been a paradigm shift
for the better that recognizes national highways as an aspect
of the economy. National Highways Authority of India
(NHAI) has taken up the ‘Golden Quadrilateral’ (GQ)
project connecting the four metro and the North–South &
East–West (NS&EW) Corridor Project and highways
connectivity to major ports in great earnest. These projects
go together as the NHDP (see Fig. 3.1). In Phase I of the

Figure 3.1 National Highway Development Project of the NHAI
Source: NHAI (http://www.nhai.org/total.htm)
NHDP, development of the GQ has been taken up and is
expected to be completed by December 2003. The total
length of the four corridors forming the GQ is around 5846
km. Of this, 1074 km is laid out as four-lane sections
(existing or already taken up) and 4723 km is under
construction. Contract for one small stretch of the GQ
remains and is expected to be awarded in 2002.
The other component of the Rs 54,000 crore NHDP—
the NS&EW—entails multi-laning of 7300 km of national
highways joining the four extremes (Srinagar–
Kanyakumari, Silchar–Porbandar) of the country in Phase
II of the NHDP. Of this, 773 km has already been four-
laned and 715 km is under various stages of costruction.
The remaining 5812 km of the Corridor Project will be
awarded by 2005 and is expected to be completed by the
end of 2007. NHAI has also awarded the construction
contracts for Jawaharlal Nehru Port Trust (JNPT), Haldia,
Mormugao and Kandla port-connectivity projects. These
projects form part of the plan to connect 11 major ports
with the national highways and are expected to be
completed by the end of 2005.
A major part of Phase I of the NHDP is being built
under standard unit rate civil works contract though even
here there are ‘innovations’ that help in ensuring incentive
compatibility. To encourage contractors to complete projects
ahead of schedule, NHAI has incorporated a bonus clause
The Infrastructure Sector in India, 2001–2 69
in the contracts. Under the scheme, contractors are paid a
bonus ranging from 1 to 6 per cent of the total contract
value for completing projects ahead of the schedule. The
bonus depends on the time by which the project completion
has been expedited vis-à-vis the targeted schedule. These
contracts still do not have long-term maintenance
arrangements and, hence, long-term (five year plus)
Operation and Maintenance (O&M) contracts are currently
under consideration1.
In Phase I of the NHDP, NHAI awarded seven
projects—a total of 373 km, about 8 per cent of GQ—
to the private sector on BOT basis, that is, with tolling.
These are combined construction and maintenance
contracts. Another seven projects—a total of 383 km,
about 8 per cent of the GQ—has been awarded to the
private sector on annuity basis. All the annuity projects
have achieved financial closure and construction has started,
signalling the confidence of private entrepreneurs and the
bankers in the annuity scheme. Following the success of
its annuity scheme for building highways with private-
sector participation, NHAI is considering to bid out more
highway projects to the private sector using the annuity
method in Phase II of the NHDP.
1 It would of course have been desirable to integrate maintenance
and four-laning together to give added (self ) incentive to build the
lanes to good quality.
70 India Infrastructure Report 2003

Box 3.1
Ne w R oad Contracts in M
Road adhya P
Madhya radesh and Andhra P
Pradesh radesh
Pradesh

The Madhya Pradesh BOT policy is based on upfront capital subsidy from the government and the right to collect toll charges
is assigned to the developer over the concession period. The state’s BOT policy is also a composite contract where construction,
rehabilitation and maintenance are consolidated into one multi-year contract over the concession period. The toll charges are prescribed
in the concession agreement. Concessionaires bid for capital subsidy which would make the project viable. Seven road projects of
985 km are under implementation and construction work is expected to be completed by the end of 2002.
The Government of Andhra Pradesh has issued a policy framework for private-sector participation in roads to encourage
development and maintenance of state roads on BOT basis. Generally, a concession is granted for 30 years. The government is to
provide land and meet upto 30 per cent of the project cost. The developer is permitted to develop wayside facilities to generate
revenue during the concession period and is also permitted to change land-use along the project corridors. Though the private developer
may levy tolls on the developed road, his main revenue stream is expected to be from the government grant and toll collections.
The Government of Andhra Pradesh has awarded four performance-based road maintenance contracts of 300 km each in four
different districts to local contractors. Each contract package has three elements. First, to carry on regular maintenance each contractor
will be periodically given an agreed sum. Second, unit price for periodic rehabilitation of the road has been fixed. Third, unit price
to provide breakdown services is agreed upon to maximize road availability. Each contract is for two years, and based on performance
the contract can be renewed for another one year.

State Highways and Roads
The government has temporarily stopped the conversion of
state highways into national highways. In the last three years
more than 6000 km of state highways had been converted
into national highways.
According to the Union Budget, 2002–3, states received
Rs 365 crore in the fiscal year 2001–2 and have been
allocated Rs 1040 crore in the fiscal year 2002–3 from the
Central Road Fund (CRF) for the state roads and state
highways. The proceeds from the CRF are being utilized
in roads-upgradation projects in Andhra Pradesh (58
projects), Maharashtra (57 projects), Tamil Nadu (255
projects) and Gujarat (222 projects).
In the state-road sector too, a paradigm shift from road
construction to service provision is taking place in a few
states. Such a shift requires a change in the institutional
organizations of the sector. With technical-assistance funding
from the World Bank, many states such as Andhra Pradesh,
Karnataka, Kerala, Mizoram, Madhya Pradesh, Maharashtra,
Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal
have had an Institutional Development Strategy study done
to revamp their organizations and departments dealing with
road development. The object of the study was to help them
to initiate the change in approach.
Mirroring the NHDP, Tamil Nadu has proposed to launch
the Chief Minister’s Highway Development Programme
which is a comprehensive plan for upgradation and
maintenance of all government roads in the state. It envisages
the upgradation of all state highways to double-lane-paved-
shoulder configuration, district roads to two-lane-hard-
shoulder specification and rehabilitation and maintenance
of other district roads and reconstruction of 304 bridges.
It is going to be a five-year-phased programme with emphasis
on integrated upgradation and maintenance contracts.
The Haryana government has decided to improve state
highways, major district roads and other district roads on
a war-footing and in a time-bound manner. The state is to
spend Rs 783 crore. The improvement work is being carried
out by the public works (building and roads) department
(PWD).
Kerala is the first state in the country to have enacted
a Road Fund Act. The Kerala Road Fund Act, 2001 plans
to attract private capital for the construction of highways.
The Act provides for the establishment of the Kerala Road
Fund with identified and dedicated revenue sources and
establishes the framework for private-sector participation
in the development of state highways. The Fund is to be
managed by the Kerala Road Fund Board. The
Infrastructure Development Finance Company (IDFC) is
assisting the government of Kerala in establishing the Board
and operationalizing the Road Fund. Preparations for the
pilot project (Vadakancherry to Pollachi) are in the final
stages under the competitive bidding process to the private
sector on BOT basis. A few more projects are being
considered.
Emerging Issues: Fund Requirements and Servicing of
Debt
In 1999, NHAI had estimated that the NHDP would cost
Rs 54,000 crore, out of which Rs 20,000 crore would be
contributed by cess, Rs 20,000 crore would come from
multilateral agencies such as the World Bank and the Asian
Development Bank, Rs 10,000 crore would be raised from
the market and the private sector would chip in with Rs
4000 crore.
For almost all of the GQ and Phase I of NS&EW
projects funds have been tied up now although sources of

funds are different from those in the initial plan. The funds
have been raised through various channels: Rs 6000 crore
from the CRF, Rs 8000 crore from the Asian Development
Bank and the World Bank, Rs 1400 crore from the market
(NHAI bonds under Section 54 EC of the Income Tax Act)
and Rs 6000 crore is expected from the Life Insurance
Corporation of India (LIC). A substantial part of the World
Bank loan has been given to NHAI as grant rather than as
loan. For Phase II, contracts are yet to be awarded and funds
for the same have not as yet been tied up.
An emerging long-term source of fund is the toll
collections from all the new four or more laned sections of
the NHDP, in perpetuity. To begin with about 1000 km
of the national highways will be tolled. Certain sections of
the national highways in Rajasthan and Uttar Pradesh are
already tolled. The tolling rates for various types of vehicles
have also been classified and notified. But all toll revenue
collected from national highways is treated as accounts
payable to the central government. It is assumed that the
entire toll collection would be provided as grant to NHAI
perpetually from the central government budget to service
debt and to maintain the national highways. To fund Phase
II of the NHDP, there is a proposal with the government
to index the road cess to inflation.
Out of all the funds raised by NHAI for the GQ project,
Rs 15,400 crore is a long-term debt which needs to be
serviced in the coming years. NHAI requires more than Rs
1500 crore to service this debt apart from annuity payments.
According to the Union Budget, 2002–3, NHAI received
Rs 2100 crore in the fiscal year 2001–2 and has been
allocated only Rs 2000 crore in the fiscal year 2002–3 from
the CRF for the national highways.
Quite clearly, at present, NHAI does not have an
unencumbered revenue stream to enter into innovative
financing arrangements for the development of Phase II of
the NHDP. The management of the CRF also suffers from
too many lacunae to be able to provide the requisite assurance
to financiers who are willing to fund Phase II of the NHDP.
Toll-based roads may be commercially viable where access
is fully controlled and alternative routes do not exist. Road
users are ready to pay for such improved facility only if the
project is well conceived and they get some tangible benefits.
A good example of this is the improved East Coast Road,
connecting Chennai to Pondicherry, developed and
maintained by the Tamil Nadu Road Development
Company. On roads which are new alignments, such as the
Mumbai–Pune Expressway, the toll collection is far short
of expectations as the alternative route, part of the NHDP,
has retained commercial traffic. The limited experience of
toll-roads and of non-captive roads within the country
suggests that only few toll-based BOT projects can be
commercially viable.
The Infrastructure Sector in India, 2001–2 71
PORTS
The 12 major ports in the country (including the corporatized
Ennore port) account for 75 per cent of the total seaborne
cargo movement in the country. While the share of the
major ports in total seaborne cargo traffic continues to be
significant in all freight segments, the rate of growth in
traffic volumes has slowed down in the last three years. In
the same period, the share of the minor and intermediate
ports in the country has shown impressive growth.
The amendments to the Major Port Trusts Act, 1963,
which have not as yet been passed by Parliament, will also
include an amendment to the Indian Ports Act, 1908. The
Act seeks to authorize the central government to transfer the
undertaking of any major port to its successor company, to
transfer the assets and liabilities of the board of trustees of
a major port to the successor company and to define the
scope of the transfer. It is proposed that all assets and
liabilities of the board of trustees, except land and waterfront,
would be transferred to the successor company. The land
and waterfront would be vested in the central government,
and would be given on lease to the successor companies.
Once the amended Act, which is with the Standing
Committee of Parliament, is passed, corporatization of major
ports will become a reality.
The actions of the government indicates that it will not
resort to total privatization of major ports but instead go
in for the landlord model of corporatization. As per this
model, the government-controlled ports will be the owner
and controller of the land and waterfront, while port services
and operations will be managed by private companies.
The board of trustees of JNPT has decided to adopt the
BOT format for developing a second private-container
terminal at the port by converting the unutilized bulk
terminal into a container terminal. The earlier proposal to
forge a joint venture with a foreign public port by offloading
74 per cent stake was opposed by the trustees. Ennore Port
Ltd. is proving to be a good example of a landlord port.
All the port services are provided by the private sector.
The Chennai Container Terminal Limited (CCTL), part
of the Peninsular and Oriental (P&O) Ports, Australia,
commenced operations at the Chennai container terminal
from November 2001 after the Madras High Court rejected
an appeal by the Union Labour Federation challenging the
decision by the Chennai Port Trust to privatize the container
terminal at the port on the ground that privatization would
hurt the interest of workers. In July 2000, CCTL had won
the mandate to manage and operate an existing container
terminal for a 30-year period.
Private port terminals in India now compare very well
with international benchmarks in port productivity. For
example, the average turnaround time for vessels at Nhava
72 India Infrastructure Report 2003
Sheva International Container Terminal (NSICT) is
comparable to the 6–8 hours taken at international ports.
Even in terms of crane moves, private Indian terminals are
close to the figure of 25–30 moves per hour achieved in
many East Asian ports.
Minor Ports
Minor ports have cornered 25 per cent of the total cargo
movement in the country. Most of the minor ports are
concentrated in a few states, which have progressive
privatization policies. Development of the minor ports is
hindered by lack of infrastructure such as rail and road
links. However, there is usually less red tape involved when
dealing with the state governments, which are now beginning
to compete with each other to attract private investment.
Recently, some states have taken steps to formalize
maritime administration under their jurisdiction. For
example, the Gujarat Maritime Board had been formed very
early by the state government to streamline development of
such facilities. The Maharashtra and the Andhra Pradesh
governments are taking initiatives for the development of
minor ports through private participation. However,
competition is intense and private parties are not ready to
take on traffic risk. The high growth in exports during
1993–6 has not been maintained. For example, the Andhra
Pradesh government is reviewing the minimum guarantee
agreement with the Kakinada Sea Port Limited (KSPL) that
operates the Kakinada deep-water port. With the private
operator expressing inability to handle the port in the present
form of the agreement, the government appears to be
weighing various options. Kakinada, the first minor port
privatized (in 1999) in the state, and KSPL, a special purpose
vehicle (SPV) of International Sea Ports Private Limited, is
a joint venture of Larsen & Toubro, Precious Shipping of
Thailand, SSA Inc. of the USA and Consortium Logistics
Bhd. of Malaysia.
Regulatory Issue—From Tariff Setting Authority to Sector
Regulator
The Ministry of Shipping, through various Port Trusts,
administers the Major Ports Act and the Indian Ports Act,
which cover the working of all major ports. Tariff Authority
for Major Ports (TAMP) is an offshoot of the Major Ports
Act that regulates and determines permissible tariff levels
for major ports. The numerous minor ports that dot the
coastline fall under the respective state government’s
jurisdiction. Minor ports are less regulated than the major
ports. As the ports compete it is a moot point if price
regulation is at all needed.
The Union Ministry of Shipping has been the regulatory
agency for the major ports. Various regulatory laws and
guidelines of the maritime industry have evolved over a
period of time. The powers of the Ministry of Shipping are,
however, discretionary in nature and are, in fact, exercised
through a number of agencies and institutions. Bringing all
these regulatory institutions and agencies into a common
framework of enforcement is bound to imply that such a
regulatory body would considerably draw on the powers of
the Ministry of Shipping itself. But a regulatory body cannot
function under terms of discretionary powers and needs to
have a mandate and legal framework of operation.
As the ports are being corporatized and thrown open to
competition, shipping lines feel that tariffs at major ports
should not be regulated. TAMP has generally worked on
cost-plus principles which is not in keeping with the idea
that ports compete. The government is considering the
conversion of TAMP into an appellate authority. The
TAMP has also requested the government for more powers
to cover issues such as environment and consumer protection
and to bring all the ports under a common regulatory
umbrella.
Inland waterways
The Inland Waterways Authority of India is keen to utilize
the National Waterway (NW) No. 1 flowing from Allahabad
to Haldia. But the Ganga and the Brahmaputra, the two
national waterways, are alluvial rivers, which carry large
amount of sediments during floods and have characteristics
of braiding and meandering.
NW No. 3 which flows through Kerala between Kollam
and Kottapuram has some natural advantages over other
national waterways in the country as it runs parallel to the
roads. This does not provide the distance advantage which
exists in other waterways. But it provides an opportunity
for intermodal mix with road and rail, and and viable
opportunitues to link the waterway with the port. The latter
facility would provide direct access to the products of the
hinterland to the ports, thus improving the economics of
export of commodities from the region.
Keeping these advantages in mind, the Kerala government
has identified three waterways in the state for developing
inland water transport along with road transport. The project
has already been taken up with the World Bank and a
detailed report is under preparation. The three waterways
identified for development are Alappuzha–Kottayam (23
km), Alappuzha–Changanassery (28 km) and Kottayam–
Vaikkom (42 km).
AIRPORTS
The government was of the view that the major airports
should be given on long lease to private operators.

Accordingly, the Ministry of Civil Aviation had roadshows
in major cities of the world to gauge and evoke interest.
KPMG, the financial advisor to the Airport Authority of
India (AAI), had compiled a list of likely bidders. It included
companies such as British Airports Authority, Aeroport de
Paris, Frankfurt Airport, Zurich Airport, Schiphol Group
(which runs the Amsterdam airport) and airport companies
in Australia. Besides the operators of Zurich, Malaysia,
Frankfurt, Singapore Changi and Copenhagen airports,
Indian and other international companies such as Larsen &
Toubro, groups such as Tatas, Birlas, Mahindra and
Mahindra, and Mitsui participated in the roadshows
organized for the leasing of the four metro airports.
Leasing of airports requires an amendment to the AAI
Act, which is pending with Parliament since November
2000. The Parliamentary Standing Committee on Tourism
and Civil Aviation, with whom the amendment is under
consideration, has raised objections over the government’s
decision to go ahead with the roadshows when the
amendment is yet to be cleared by Parliament.
An alternative, which seems to be finding favour, is to
form joint ventures with private companies instead of going
in for long-term lease of the international airports in Delhi,
Kolkata, Chennai and Mumbai. The issue of how much
stake the AAI will have in the joint venture is yet to be
decided. The process of privatization is scheduled to be
completed by the end of the fiscal year 2003. Even after
the management of the airports is handed over to private
parties, AAI will retain air traffic control and security.
New Airports
The civil aviation ministry, with its airport privatization
agenda, identified the model equity pattern in the business-
driven board of the Bangalore airport. Siemens (40 per
cent), Larsen & Toubro (17 per cent) and Zurich Airport
(17 per cent) together hold major stakes in the Bangalore
airport. Unlike any other airport in the country, both the
centre and state governments together have only 26 per cent
stake in the Bangalore airport. The board is presided over
by Narayana Murthy, founder and chairman of Infosys.
Financial closure for Bangalore’s dream project—the Rs
1100 crore Bangalore International Airport at Devanahalli—
is expected by December 2002. Bangalore International
Airport would be the first privately-owned airport in India.
Every facility such as ground, passenger and aircraft handling,
security, immigration, customs, air traffic control, equipment
and crew control, collection of passenger tax and so on had
to be negotiated. These issues will be clearly outlined in the
concession and land-lease agreements. The first phase of the
airport is slated to be constructed in 30 months from the
date of financial closure. The airport is expected to be
operational by the end of 2005.
The Infrastructure Sector in India, 2001–2 73
The government was of the view that second international
airports in or around Delhi, Mumbai, and Chennai would
adversely affect the prospect of leasing out of the airports
in these three cities. But now, as the airports are going to
be managed by joint-venture companies, the issue of setting
up new international airports is wide open.
To meet the regulatory requirements of civil aviation the
government has proposed the establishment of a Civil
Aviation Regulatory Authority. The role of AAI, once the
existing metro airports begin to be privately managed, is still
being worked out.
RAILWAYS
Indian Railways faces a major competitive threat as the
highway system is improved, and increasing competition
among the airline companies spills over into the upper class
railway segment. Intensified intermodal competition is the
inexorable result of quantum increases in carrying-capacity
made possible by modern truck and wide-body airplane
design. In particular, the long and heavy truck designs have
significantly narrowed the ‘cargo capacity gap’ between rail
cars and motor carrier vehicles. As fuel-efficient heavy truck
technology is being adopted by commercial vehicle
manufacturers, the market niche of railways shrinks. But
what is more immediate and pertinent in India is that the
Railways cannot continue any more with its absurdly high
prices for freight, perhaps even above the revenue
maximization rates! Similarly, upper-class long-distance
passenger services would suffer if airline prices fall further.
Transportation of petroleum, oil and lubricants (POL)
by rail, which is one of the most profitable segments for
Indian Railways, has been coming down in the recent years.
This is exacerbated by the fact that pipelines for the transport
of petroleum products are coming up in a big way.
Approximately 6000 km of such pipeline network is already
in place and plans are afoot to lay an additional 6000 km
of pipelines. Pipelines pose a real threat of almost totally
weaning away POL traffic from the rail sector in the years
to come. Multimodal optimality necessarily demands that
different modes occupy the spaces where their comparative
advantage is largest, and compete where they overlap. Good
highways, corrections of tariff and input price distortions
are all necessary to further this movement towards a true
multimodal system.
Railways’ Golden Quadrilateral: The Railways would like
to enhance the capacity and strengthen the rail network
emanating to and from Delhi, Kolkata, Chennai and
Mumbai—also nicknamed the Golden Quadrilateral—and
its diagonals. As much as 60 per cent of the Railways’ freight
business and 50 per cent of its passenger traffic comes from
74 India Infrastructure Report 2003

these lines. For this the ministry is yet to decide on the
nature of instruments to raise the funds using an SPV. It
is confident that the returns on the project will be good
enough to encourage domestic financial institutions such as
the LIC to invest in the project.
The Railways will also be seeking Rs 11,000–12,000
crore multilateral funding from the World Bank, the Asian
Development Bank and the Japanese Bank for International
Cooperation for augmenting capacity on its GQ.
Leveraging of Right of Way: POL movement is the most
lucrative part of the Railways’ business. The commodity has
been placed at 300 level, which is the highest in the railways
classification of different goods in terms of the freight rates
charged. The Railways has been worried about losing POL
business with several large pipeline projects coming up in
different parts of the country. Faced with erosion in share
of POL freight business with the advent of pipelines, the
Railways is now offering its exclusive right of way to
downstream petroleum companies to jointly build pipelines
to move these products.
On-time Delivery: The Railways has entered into a joint
venture with Gujarat Pipavav Port for the Pipavav port-rail
link where both parties have entered into a traffic-delivery
pact. The Railways has, for the first time, undertaken a
commitment to carry out delivery according to a schedule
and pay heavy penalties for any slippage. Under this
agreement, the Railways and Gujarat Pipavav Port are liable
to pay heavy penalties if they fail to honour the agreement.
New BOT Scheme: Under the new BOT scheme, the
Railways will be using the new facility on payment of access
charges to the private builder. The contract will be awarded
to the one who bids the lowest access fee. The Railways
would be paying access charges only after commissioning
a project. The Railways has already used this scheme to
finance the Viramgam–Mehsana project which is estimated
to cost Rs 60 crore. Emboldened by the positive response
from the private sector engaged to carry out work on the
Viramgam–Mehsana section, the Railways has identified
three more projects to be taken up for private participation
under the BOT scheme. These are Amroha–Kankarher
doubling of railway track, bridge on the Mahanadi as part
of Talcher–Cuttack–Paradeep doubling of track and
Bhatapari–Silyari third line on Bilaspur–Urkura section.
Joint Ventures with Users: The Pipavav example, where the
Railways and the users—the state government and port
authorities—have joined hands to set up the Railways’ link
with the port has inspired the Railway Ministry to go in
for similar arrangements elsewhere. The Railways has tied
up with a private freight delivery company, Gati Limited,
to run a private train, Millennium Express, on the railway
track.
Freight Terminals using Build, Own and Operate Scheme: The
South-Eastern Railway has invited expression of interest
from prospective investors to set up privately-funded railway
freight terminals for public use under the build, own and
operate scheme. These freight terminals will be set up at
Shalimar, Sankrail, Visakhapatnam, Mandir Hassaud, Hatia,
Tatanagar, Kalaikunda, Bhilai, Bondamunda, and Behrampur.
The facilities of terminal service provider (TSP) will
include multimodal facilities for rail-cum-road link,
warehousing facility to help receipt and dispatch of rail-
borne traffic, modern handling and storage facilities for
quick loading and unloading and IT back-up for logistics
services. The TSP will construct, operate and maintain the
freight terminal and warehousing complex for public use,

Box 3.2
I ndia
ndia’’s Transpor
ransportt SSector:
ector: The Challenges Ahead

In 2002, the World Bank published a comprehensive study on India’s transport sector. According to the report the overall progress
has fallen short of what is needed for transport to facilitate faster economic growth as well as poverty alleviation. Stating that further
reform would confront ‘some tough political and institutional constraints,’ the Bank said the progress of transport reform would
depend critically on ‘a continued and steady increase in the political will for reform and the emergence of transport users and
stakeholders as key agents and pressure groups for change.’
The contribution of the private sector towards the improvement of the transport sector is acknowledged but the report warns
of evaluating the effectiveness of these new approaches in leveraging public-sector finance and transferring risk to the private sector
(rather than merely creating off-balance sheet liabilities for the central or state budgets). It cautions that delay in addressing regulatory
and information bottlenecks may slow down private investment in the sector.
The report has suggested that the Railways should set two top priorities. First, it should improve customer-responsiveness of the
core rail business services and second, focus on a much larger share of the capital budget on economic priority investments.
To enhance intermodal transport, the report has suggested that establishing dry ports outside main port cities would facilitate
interfacing with railways and road transport, and possibly waterways, in the eastern part of India. The specific issue of railway interface
in ports has to be addressed on a priority basis, particularly in places where the cargo transfer between Indian Railways and the
local port involves inordinate delays.

provide all necessary services to customers for loading and
unloading of wagons, including transportation of goods to
and from their business premises. Besides all this, the TSP
will also realize money from customers for add-on services
such as warehousing, secondary road transportation and
handling charges, including service charges, from the
Railways for handling the rakes at terminals.
The Railways’ subsidiary, Container Corporation of India
(Concor) has been showing changes in its operational style.
From a transporter of exports and imports between port-
based locations and a few inland railway points, it is emerging
as a logistics service provider. It has drawn up plans to
become a total logistics solutions company. As a first step,
the company is putting in place a hub-and-spoke network
in the country. It is planning to create 14 hubs. From each
hub, it is going to service clients within a radius of 300 km
by road. Concor is already providing logistics support to the
Reserve Bank of India’s (RBI) security press in Mysore. In
short, the Railways and its sister concerns show the first
signs of adapting to customers’ needs in an increasingly
competitive environment.
Intermodal Transport System
The government does not have a comprehensive and
integrated transport policy. The policy document (Planning
Commission, 2001b) is largely a compilation of the transport
plans for different modes rather than an integrated transport
policy. But enhanced participation of the private sector in
road building, freight-traffic movement by railways,
connecting ports with roads and railways puts pressure to
move towards a multimodal system. Efficient usage of existing
and planned facilities would demand this.
Under Phase II of the NHDP—the development of
NS&EW—ten major ports of the country are to be
connected to the national highway system. But the software
side of the multimodal transportation is yet to be attended
to. Rationalization of the documentation involved is crucial
to the fast movement of goods from one place to another.
POWER
The Draft Electricity Bill, promising major deregulation of
the sector, is yet to be passed by Parliament. The government
is confident that in the next three years the situation in the
power sector will improve..
The financial health of state electricity boards (SEBs)
deteriorated further during 2001–2, with rate of return
falling to a negative 44.1 per cent from a negative 39.1 per
cent recorded during 2000–1! As per the annual report on
working of SEBs and electricity departments (Planning
Commission, 2002b) the return on assets employed by
SEBs was declining because of growing levels of commercial
The Infrastructure Sector in India, 2001–2 75
losses. SEBs had accumulated dues of Rs 41,473 crore, with
interest amounting to Rs 15,746 crore, up to the end of
February 2001. The estimated commercial losses of SEBs
(without subsidy) during 2001–2 were Rs. 33,177 crore as
compared to Rs 11,305 crore during 1996–7. The
commercial losses with subsidy payable by state governments
increased to Rs 24,837 crore in 2001–2 as compared to Rs
4674 crore in 1996–7. The net internal resources of SEBs
continued to be negative. It was estimated to be Rs (–)
19,104 crore in 2001–2 as compared to Rs (–) 2091 crore
in 1996–7.
Reforms in Power Sector
Power-sector reforms have ostensibly been accorded top
priority by the central government. The government has
taken many initiatives to tackle the problems of the power
sector. The government accepted the Report of the Expert
Group on Settlement of SEB Dues, chaired by Montek
Singh Ahluwalia. Recommendations made by the N.K.
Singh Committee with regard to transition financing of
SEBs were also accepted by the government and fructified
in the Accelerated Power Development and Reform
Programme (APDRP) announced in the Union Budget,
2002–3. Recognizing the importance of the distribution
sector the Ministry of Power constituted a committee under
the chairmanship of J.L. Bajaj to study the issues related to
the distribution sector. To implement the APDRP at the
state level the Ministry of Power has constituted an expert
committee under the chairmanship of Deepak Parekh. To
make the best use of IT in the power sector, the Ministry
of Power has constituted a committee under the chairmanship
of Nandan Nilekani.
Report of the Expert Group on Settlement of SEB Dues
The Chief Ministers’ Conference held in March 2001 had
noted that the large amount of dues owed by SEBs to the
Central Public Sector Undertakings (CPSUs) was a major
impediment to power-sector reforms. To resolve this issue
the Ministry of Power constituted an Expert Group to
recommend measures for a one-time settlement of
outstanding dues of SEBs towards CPSUs as also the dues
from CPSUs to SEBs. The Expert Group was also to suggest
a strategy for capital restructuring of SEBs.
The Group proposed a one-time settlement linked with
an arrangement that would ensure payment of current dues
in future. The tripartite agreement between the state, the
SEB and the CPSUs is to commit to initiate the process of
reform. The main features of the recommendations include:
• Waiving of 50 per cent of the surcharge or the interest
on delayed payments. The rest of the dues aggregating to
Rs 33,600 crore should be securitized through bonds issued
76 India Infrastructure Report 2003

by the respective state governments. These bonds are to be
issued by the RBI as tax-free interest rate bonds.
• If current payments are not made in time, CPSUs to
reduce supply in graded manner. As a last resort the Ministry
of Power to recover dues from central governments’ transfers
to states. States to be offered incentives for complying with
the scheme by CPSUs.
• States undertaking reforms to be provided funds from
the Accelerated Power Development Programme (APDP)
grants and discretionary allocation of power.
• The states to accept reform-based performance
milestones.
agreed reform milestones and quantified improvement in
reduction of commercial losses; the touchstone of reforms
being gradual elimination of the gap between unit cost of
supply and revenue realization within a specified time-frame.
Although as many as 15 states had signed the agreement
by August 2002, the tripartite agreements between SEBs,
the Ministry of Power and RBI are yet to be signed before
RBI can start issuing bonds to the central power utilities
on behalf of SEBs as part of a one-time settlement of past
dues.
Distribution Policy Committee Report

The issue of capital restructuring of SEBs was deferred.
Implementation of the Recommendations
Further to the Expert Group recommendations, the issue of
transition financing of SEBs was addressed by a task force
headed by N.K. Singh, Member (Energy), Planning
Commission. The scheme proposed by the task force was
included in the APDRP announced in the Union Budget,
2002–3. The APDP was rechristened as APDRP in the
budget. States will be able to access funds on the basis of
The Ministry of Power constituted a committee under the
chairmanship of J.L. Bajaj to study the issues related to the
distribution sector, including private-sector participation in
the distribution sector. The Committee emphasized the
importance of reforms in the distribution sector to make
the power sector financially viable. The Committee suggested
that privatization of high-load urban areas can be achieved
without tariff shocks or subsidies and privatization of rural
areas can be taken up at a later date.
The Ministry of Power has identified 60 distribution
circles as centres of excellence in different states for the

Box 3.3
Priv atization of DIST
rivatization COMS of D
DISTCOMS VB
DVB

Among all the state governments which are pursuing reforms in the power sector, the privatization of distribution companies
(DISTCOMS) of Delhi Vidyut Board (DVB) by the government of Delhi is an outstanding reform. The private sector was brought
in to address the issue of theft. The power distribution in the state has been divided into three segments, namely, the South–West,
Central–East and the North–Northwest circles.
The privatization of the circles was done using a competitive bid method. In the first round none of the bids could meet the
qualifying criteria of the state government and, hence, all the bids were rejected. The government then renegotiated the bid parameter
values with the private companies.
The bidding process for DVB was different from the one being followed for the commercial CPSUs. For CPSUs, the interested
parties bid for a certain equity portion, and the highest bidder takes over the CPSU. In the case of DVB, the final selection of
the bidders was based on the bid that offered the greatest efficiency improvement over a period of five years above the prescribed
minimum level. The bidders vied with each other in bringing down the aggregate technical and commercial (AT&C) losses, which
is different from transmission and distribution (T&D) losses. AT&C figures are higher than T&D losses because the latter do not
take into account the units that have been billed but not recovered from consumers. In the bids submitted by Tata Power and BSES,
the two companies had assured only 12 to 14 per cent reduction in AT&C losses in the next five years, but have agreed to reduce
the losses by 17 per cent. The bidders will be allowed to keep half of the amount if they over-achieve the bid target, while the other
half will go to the consumers. The bidders will hold 51 per cent equity in the DISTCOMS.
The two companies have agreed to withdraw their demand for a 16 per cent assured profit for the next 30 years. The private
companies wanted the state government to reimburse 16 per cent profit in case they suffered losses. The state government, however,
has offered to increase the five-year subsidy paid to the transmission company (TRANSCO) from Rs 2600 crore to Rs 3450 crore.
BSES, which has taken over the South–Westa and Central–Eastb circles in the city, plans to invest Rs 1000 crore during the
next five years for upgrading the existing distribution systems in these circles. Tata Power, which has the North–Northwestc region
of the city will also invest close to Rs 350 crore during the next five years.
Soon after the handover of the DISTCOMS to Tata Power and BSES, the city faced power shortages. However, political resolve
has not shaken in the face of adversity. The outcome of the DVB privatization is being watched with interest by all the stakeholders.
a For the South–West circle BSES is registered as BSES Rajdhani Power Ltd.
b For the Central–East circle BSES is registered as BSES Yamuna Power Ltd.
c Tata Power, responsible for the North–Northwest region, is registered as North Delhi Power Ltd.
 The Infrastructure Sector in India, 2001–2 77

Table 3.1
Status of Power Reforms in States
State Status of Reform
1. Andhra Pradesh • State Electricity Regulatory Commission (SERC) constituted, functional, two tariff
orders issued.
• Reform Law enacted, SEB unbundled.
• Distribution privatization strategy being finalized.
• Memorandum of Understanding (MoU) signed with Government of India.
2. Arunachal Pradesh • SERC notified (yet to be constituted).
3. Assam • Single member SERC constituted.
• MoU signed with Government of India.
4. Bihar • MoU signed.
• Tariff revised by SEB.
5. Chattisgarh • MoU signed with Madhya Pradesh adopted.
6. Delhi • SERC constituted, functional.
• First tariff order issued.
• Reform Law enacted, DVB has been unbundled.
• DISTCOMS privatized.
7. Goa • MoU signed with Government of India.
8. Gujarat • SERC constituted, functional, first tariff order issued.
• Reform Law approved by Government of India and introduced in the State Assembly.
• MoU signed with Government of India.
9. Haryana • SERC constituted, functional, two tariff orders issued.
• Reform Law enacted, SEB unbundled.
• MoU signed with Government of India.
10. Himachal Pradesh • HPSERC constituted.
• First tariff order issued.
• MoU signed with Government of India.
11. Jammu and Kashmir • Administrative Staff College of India appointed as consultant for conducting reform
studies.
• Reform Law passed.
12. Jharkhand • MoU signed with Government of India.
13. Karnataka • SERC constituted, functional, first tariff order issued.
• Reform Law enacted, SEB unbundled.
• MoU signed with Government of India.
• Distribution privatization to be completed by December 2001 as per MoU signed
with Government of India.
14. Kerala • SERC constituted
• MoU signed with Government of India.
15. Madhya Pradesh • SERC constituted.
• First tariff order issued.
• Reform Law passed by the Assembly and notified.
• MoU signed with Government of India.
16. Maharashtra • SERC constituted, functional, two tariff orders issued.
• MoU signed with Government of India.
17. Orissa • SERC functional, four tariff orders issued.
• Reform Law enacted, SEB unbundled.
• Distribution privatized.
• MoU signed with Government of India.
18. Punjab • SERC constituted. Chairman, members appointed.
19. Rajasthan • SERC constituted, functional, two tariff orders issued.
• Reform Law enacted, SEB unbundled into one generation, one transmission and
three distribution companies.
• RFP for distribution privatization to be issued by July 2002.
• MoU signed with Government of India.
Table 3.1 contd.
78 India Infrastructure Report 2003

State Status of Reform

20. Tamil Nadu • SERC constituted.
• MoU signed with Government of India
21. Uttar Pradesh • SERC constituted, functional, two tariff orders issued.
• Reform Law enacted, SEB unbundled.
• Distribution privatization strategy to be finalized.
• MoU signed with Government of India.
22. Uttaranchal • MoU signed with Government of India.
23. West Bengal • SERC constituted.
• First tariff order issued.
• MoU signed with Government of India.
24. Nagaland, Meghalaya, Mizoram, • Have shown willingness to constitute Joint Electricity Regulatory Commission.
Manipur, Tripura, Sikkim

Source: Adopted from Planning Commission (2002b)

improvement and strengthening of the sub-transmission
and distribution network.
The Deepak Parekh Committee on State-Specific Capital
Restructuring and Structural Adjustment Financing
To address the issue of state-specific capital restructuring
and structural adjustment financing of SEBs, which the
Expert Group on Settlement of SEB Dues deferred to a
later date, the Ministry of Power constituted an Expert
Committee under the chairmanship of Deepak Parekh to
develop state-specific reform programmes to make the
power sector financially viable and to utilize the APDRP
funds effectively. The Committee is to examine the progress
of the APDP programme and critically evaluate different
approaches adopted by different states. In consultation
with a few state governments, the committee is to devise
state-specific reform programmes having timeline for major
reform milestones and assess the fund requirements from
APDRP and other sources to achieve the reform
objectives.
The Nandan Nilekani IT Task Force for the Power Sector
The Ministry of Power constituted a task force to leverage
IT to improve the quality of service in the power sector. The
task force is under the chairmanship of the Managing Director
of Infosys, Nandan Nilekani. It will review the use of IT
already being practised and will suggest how to apply the new
developments in IT to the power sector, especially in the
distribution sector. The task force will also take up a pilot
project to demonstrate the efficacy of their recommendations.
Hydel Power
There has been an urgency in tapping hydel power, partly
because run-of-the-river hydel project provides base load
and water can be used for canal irrigation. The hydro-
thermal mix of generation capacity, which ideally should be
around 40:60, has shifted in favour of thermal generation,
which accounts for over 70 per cent of the capacity.
The state-run National Hydroelectric Power Corporation
(NHPC), which has proposed to carry out 16 hydro projects

Box 3.4
ABC of AT&C Loss
AT&C

Until the privatization of DVB, the term mostly used to describe losses in the electricity system was T&D losses. A new term which
is gaining currency is the AT & C losses. The AT & C losses will be higher than the T&D losses if all the units billed to consumers
are not collected. Thus, commercial losses include collection inefficiency which is entirely due to human incompetence. For example,
if 100 units are the input in the distribution system at 66/33 KV level and only 60 units are billed, the T&D losses are 40 per
cent [(100–60)/100]. To elucidate, if the 60 units are billed for Rs 300, but the amount realized is only Rs 270, the collection efficiency
is 90 per cent [(270/300)/ 100]. Thus, the money has been collected for only 54 units [(60/90)/100] and AT&C losses are 46 per
cent [(100–54)/100]. The collection shortfall is entirely due to poor collection of dues from consumers.
In the privatization of DISTCOMS of DVB the government stipulated minimum loss reduction figures for the five years for
each of the DISTCOMS and bidders were to quote year on year AT&C loss reduction figures over and above the stipulated figures.
The initial stipulated figures were around 20 per cent for five years and none of the bidders were even ready to meet the reduction
in stipulated AT&C losses. After negotiations the bidders have agreed to reduce the AT&C losses by 17 per cent over the five-year
period.

with a total capacity of 7268 MW during the Tenth Plan
(2002–7), has sought budgetary support of Rs 22,000 crore.
It is unlikely that NHPC will be able to get financial
support of this magnitude and it is improbable that the
private sector will participate in large hydroelectric power
plant projects due to the twin risks of endangering the
environment and of taking on the responsibility for the
resettlement and rehabilitation of the affected population,
besides the risks imposed by nuclear policy and regulation.
But the success of the 86 MW Malana project in Himachal
Pradesh promoted by the LNJ Bhilwara Group has shown
that small hydroelectric projects can be profitable ventures.
The Malana Power project became operational in the year
2002. This project has exploded the myth that hydel projects
are highly capital-intensive and have a long gestation period.
Rather than going for mega hydel projects, which attract the
attendant problems of displacement of people and their
resettlement and rehabilitation, states are being encouraged
by the central government to involve the private sector in
smaller projects—of up to 15 MW—as these would not
displace people and would not affect the environment.
With a view to encourage small hydel-power projects,
the Ministry of Power has decided that the central
undertakings such as NHPC, North-Eastern Electric Power
Corporation, Tehri Hydroelectric Development Corporation
and National Thermal Power Corporation (NTPC), should
provide technical assistance to states to undertake viable
projects.
Transmission
The reform agenda moved to the distribution side of the
power sector, but the failure of the Western Grid which
plunged five states—Maharashtra, Gujarat, Madhya Pradesh,
Chattisgarh and Goa— — into darkness in July 2002, was a
reminder that serious management and coordination
problems continue to afflict other parts of the power sector.
It was a repetition of the Northern Grid failure of January
2001. The Ministry of Power has asked the Central Electricity
Authority (CEA) to hold an enquiry. The CEA had carried
out a similar enquiry in January 2001 after the failure of
the Northern Grid and had recommended 27 steps to stop
failure of regional grids. Apparently overdrawing by Madhya
Pradesh was the cause of the failure. If so, it points to the
failure of the newly instituted ‘availability-based tariffs’, to
work, when violations to grid discipline are rampant.
The States
States where regulatory commissions have passed tariff orders
include Maharashtra, Orissa, Rajasthan, Uttar Pradesh,
Karnataka, Haryana, Delhi, West Bengal, Madhya Pradesh,
Andhra Pradesh and Himachal Pradesh. In these states
The Infrastructure Sector in India, 2001–2 79
average agricultural tariffs have been increased. Regulatory
commissions have got a shot in their arms as the Supreme
Court has ruled that fixing electricity tariff (by the
‘Regulatory Commission’) and providing for cross-subsidy
is essentially a matter of policy and normally a court would
refrain from interfering with a policy decision unless the
power exercised is arbitrary or ex facie bad in law.
All the distribution reforms are going to be carried out
by the states, but some of the states are ahead of others in
implementing the reform agenda. For example, as part of
its efforts to improve performance at various levels, the
Transmission Corporation of Andhra Pradesh (APTransco)
has introduced a new performance monitoring and review
system through which the performance of each section, sub-
division, division and circle is updated at the field level and
transmitted directly to the headquarters. As a prelude to
privatization of distribution circles many states such as
Delhi and Karnataka have passed bills which seek to make
punishment for theft of power more stringent.
In terms of reform process, Delhi has apparently raced
ahead of other states. The distribution companies
DISTCOMS of the Delhi Vidyut Board (DVB) were
privatized in July 2002. The privatization is widely acclaimed
and though the efficacy of privatization would be known
only after five years, the efficiency gains should start trickling
in the first year onwards.
URBAN INFRASTRUCTURE
One of the far-reaching developments in Urban Local Bodies
(ULBs) is to revamp the Municipal Accounting System for
reliable financial data. The Comptroller and Auditor General
(CAG) has constituted a task force for preparing guidelines
for Accounting Reforms.
The central government has established the City Challenge
Fund (CCF) which is going to be administered by the
Ministry of Urban Development and Poverty Alleviation.
This is the first time when the central government has
directly provided support to ULBs through the Union Budget.
The CCF is to provide incentives during transition towards
stronger institutional system of municipal management.
Many metropolitan cities such as Delhi, Mumbai,
Bangalore, and Chennai are keen to invite private-sector
participation in developing mass rapid transportation
systems, sanitary landfills, etc. The operation and mainte-
nance of water system in Sangli is progressing well.
Urban Mass Transport System
Even though urbanization has been growing rapidly, little
attention has been paid to urban mass transport systems
(UMTS). People in upcoming urban areas rely on auto-
80 India Infrastructure Report 2003
rickshaws and auto-taxis for transportation. Only in large
cities do the municipalities operate local buses. The World
Bank, in its report of 2002, has observed that most cities have
failed to effectively address the issue because they are not
equipped with the appropriate institutional capacity and the
necessary financial resources. While enumerating institutional
weaknesses leading to such a situation, the World Bank has
pointed to the fragmented functional responsibilities for urban
transport among central, state and local authorities, without
any one of them being in charge of coordination and outcomes.
Lack of urban transport management capabilities and poor
financial resources of most municipalities have plagued
transportation within cities.
The Mumbai Urban Transport Project—an ambitious
urban improvement plan to ease congestion in the city—
is being implemented by the Mumbai Metropolitan Region
Development Authority. The project is divided into a rail
transport component, a road-based transport component
and a resettlement component. The World Bank is providing
a support of US $542 million comprising of a loan of US
$463 million and interest-free credit of US $79 million
equivalent. To address the issues of fragmented responsibility
raised by the World Bank, the Mumbai Rail Vikas
Corporation was created in 2002—an innovation which
brings decision-making of the Mumbai suburban-rail system
closer to the state authorities and urban planners.
The Delhi government is planning to establish a Transport
Regulatory Authority to decide on all matters pertaining to
fare hike and other related matters. This will be the first
such authority at the urban local level.
Another innovative transportation system—‘skybus’—is
being developed by the Konkan Railway Corporation (KRC).
The project has been found suitable for metropolitan cities
by an expert committee. The KRC is confident that several
companies would approach it for executing the project,
once the state government and municipal corporations gave
it the right of way and allowed the companies to earn
profits via ticket-sale and advertising. According to the
project proposal, eight-metre-high pillars, on which box
girders would rest, would be installed along the centre (on
dividers) of the existing roads, 15 metres apart from each
other.
Urban Roads
The success of the Delhi and Mumbai fly-over construction
programmes has encouraged other metropolitan cities to
initiate fly-over construction in their cities. The Bangalore
Mahanagar Palika has promised the city 14 new flyovers,
six pedestrian subways and multi-storeyed parking at
commercial complexes in its budget for the year 2002–3.
The Chennai Corporation has given city roads top priority
in its budget and allocated Rs 75 crore for 2002–3.
WATER
National Water Policy
The adoption of the National Water Policy (2002c) by
consensus is an important milestone for the Water Resources
Ministry even though sensitive topics like inter-state water
sharing have not been included. There has been no consensus
on the subject of guidelines for the allocation of interstate
waters. The idea of statutory River Basin Organizations
(RBOs) to monitor the implementation of the policy as
agencies was not accepted. The chief ministers of many
states rejected the idea of RBOs having statutory powers to
call for data on water use and management.
One of the salient features of the policy is the provision
for private-sector participation in planning, development
and management of water-resources projects for diverse
uses, wherever feasible. Private-sector participation could
help in introducing innovative ideas, generating financial
resources and introducing corporate management and
improving service efficiency and accountability to users.
Depending upon the specific situations, various combinations
of private-sector participation in building, owning, operating,
leasing and transferring of water-resources facilities could be
considered. Without a policy that prices water appropriately
or creates frameworks to actually bring in the private sector,
it is debatable whether anything much would happen in the
near future.
In the planning and operation of systems, the policy lists
drinking water as priority number one. The others in their
order of ranking are: irrigation, hydro power, ecology, agro-
industries and non-agricultural industries, navigation and
other uses. The National Water Reforms Committee has
suggested to states that they should have their own policies
within the next two years. Karnataka has already shown the
way to others by adopting a State Water Policy. Karnataka,
which has been having a dispute with Tamil Nadu and
Andhra Pradesh (on Cauvery and Krishna) as well as with
Maharashtra (on Krishna and Bheema), has gone all out to
guard its interests closely. With the approval of guidelines
Andhra Pradesh and Tamil Nadu too will gear up similarly.
SOLID WASTE MANAGEMENT
One of the most neglected infrastructures in urban areas has
been solid waste management. However, concerted effort is
being made by some ULBs to address the issue.
The Hyderabad Metropolitan Water Supply and Sewerage
Board plans to lay a water-supply line and sewerage lines
in the Charminar area. The project is expected to benefit
5000 families living in slums. The Board has taken up
drinking water and drainage problems in the localities of
the old city.

The Tamil Nadu Pollution Control Board has approved
the proposal for solid waste management in eight towns,
including hill resorts, with the assistance of the Tamil Nadu
Urban Development Finance Corporation.
The Municipal Corporation of Delhi (MCD) has signed
a Memorandum of Understanding (MoU) with the IDFC
where the latter will assist the MCD in upgrading and
enhancing its urban infrastructure services. The four main
sectors where the IDFC would actively work with the MCD
include solid waste management—collection, transportation,
treatment and disposal; land-use commercialization; urban
transport; financial planning and development of urban-
social infrastructure. Under land-use commercialization, the
IDFC would formulate plans to develop vacant land for
parking and other commercial use besides preparing database
of properties to identify their market use, thus generating
more revenue for the civic body.
SPECIAL ECONOMIC ZONES.
The Government of India had announced a policy of Special
Economic Zones (SEZs) during March 2000 under the
Export–Import Policy. The idea is to provide zones for
export into which imports are going to be entirely free.
That, plus infrastructural facilities and easier regulation,
especially with regard to labour, should, it is hoped, lead
to a level playing field for locating production in India. The
policy has drawn the attention of the state governments to
coastlines from which they hope to profit from the possible
enhanced economic activity.
The announcement of the Exim policy 2002–3 has given
further impetus to the creation of SEZs because the Exim
policy has included service-sector units to be set up in SEZs.
Under this policy offshore banking units can now be
established in SEZs. Banking units within SEZs will be able
to provide loans and risk products at international rates to
the SEZ units. But banks with a centralized registry have
to wait for guidelines, being developed by RBI, to ascertain
revenue recognition on their books for a client. This extension
in policy will also help in setting up IT-enabled businesses
and biotech research service centres in the SEZs.
Policy related to labour remains the Achilles’ Heel. Labour
being a state subject, the government has chosen a novel
way to circumvent existing labour policies. The
administrative control being under the development
commissioner, it is left to individual states to empower the
commissioner. For example, Maharashtra has declared all
units in SEZs as public utilities, and the provisions of
Essential Services Act on labour issues will be applicable in
the SEZ. In practice, the development commissioner will
be like a Viceroy of the SEZ and all the powers of the state
government will be delegated to him under the forthcoming
Maharashtra SEZ Act, 2002.
The Infrastructure Sector in India, 2001–2 81
State Initiatives
Many state governments have initiated plans to build new
SEZs with the help of the private sector. About 13 SEZs
have been given ‘in principle’ approval. Only two have got
formal approval—Navi Mumbai and Positra—where SEZs
are taking shape. The SEZs at these locations are expected
to become operational in two and five years respectively.
The development of Navi Mumbai SEZ by the
government of Maharashtra would take advantage of the
existing JNPT port, port connectivity with the GQ under
the NHDP and would be an extension of the Mumbai–
Pune industrial agglomeration. The aim of the state
government is to encourage FDI in the non-polluting
industries in the state to promote growth and employment.
The Gujarat government has also notified the state’s
policy for SEZs under a government resolution which will
apply to all SEZs in the state. This includes the Kandla SEZ,
Surat SEZ and proposed SEZs at Positra, Mundra and
Dahej and at any other locations where SEZs may come up
in Gujarat, subject to the framework for SEZ determined
by the Government of India from time to time. As per the
state policy, all SEZs in the state will be declared as ‘Industrial
Township (Notified Area)’. The management of SEZs will
be under the designated development commissioner who
will grant all the permissions. These will include registration
of the unit, allocation of land, permission for construction
of building and approval of building plan, power connection,
environmental clearance, water requirement, etc.
The Andhra Pradesh government has also announced an
SEZ policy which envisages a single-window clearance for
investors, and exemption for small-scale and infotech
industries from registration. The labour framework for
SEZs envisages notifying 100 per cent export-oriented
units as ‘public utility services’ and providing exemptions
from maintenance of registers and records and setting
working hours, under Sections 18 and 13, of the Minimum
Wages Act, 1948. The policy also states that suitable
amendments will be made in the Andhra Pradesh Shops
and Establishments Act, 1988, to make 365 days-a-year
and 24 hours-a-day working possible, provided suitable
overtime allowance is paid! The Trade Union Act, 1926,
is also proposed to be amended to exclude outsiders from
becoming office-bearers of a trade union. Andhra Pradesh
has proposed an SEZ to be established at Achutapuram in
Visakhapatnam district. Andhra Pradesh Industrial
Infrastructure Corporation will be the nodal agency
handling most of the state government’s infrastructure
initiatives including choosing a joint venture partner for
the proposed project.
The Karnataka government has come up with a novel
idea of a ‘joint coastal special economic zone to cover the
three coastal districts of Dakshina Kannada, Udupi and
82 India Infrastructure Report 2003
Uttara Kannada. As much as 1000 acres of land at
Baikampady near the New Mangalore Port has been
identified for the project. About 2000 acres have been
earmarked for the project in Padubidri (in Udupi district)
while 300–1000 acres have been identified near the Tadadi
port (in Uttara Kannada) for the third SEZ. All the three
areas are expected to function as an ‘SEZ corridor’—a joint
coastal special economic zone. The project is to be
implemented by private promoters, with the state
government providing land and concessions for the
development of infrastructure. This is a novel idea—probably
impractical—where the three disjointed areas are to function
as one special economic zone.
RURAL INFRASTRUCTURE
Rural Telecom
Rural areas are generally seen as very low revenue-generating
areas. It is estimated that the capital cost of a village public
telephone (VPT) varies between Rs 18,000 to Rs 200,000,
depending on the terrain and the technology deployed.
The National Telecom Policy (NTP), 1999 envisaged
implementation of USO for rural and remote areas through
all Basic Service Providers (BSP) who were to be reimbursed
from the funds collected by way of universal service levy
(USL). Other telecom service providers were allowed to
meet USO targets subject to technical feasibility and were
entitled to be reimbursed from the USL funds.
TRAI issued a discussion paper on ‘Issues Relating to
Universal Service Provision’ in 2000 and made
recommendations to the government after consulting all the
stakeholders. The DoT issued guidelines for implementation
of universal service support on the basis of TRAI’s
recommendations. The DoT has decided to extend support
to the Universal service from the fiscal year 2002–3. The
guidelines have suggested ‘a multi-layered bidding process
on the Least Quoted Subsidy support’ method to be adopted
to determine the subsidy provided to a service provider. But
the bidding would be opened to all service providers only
when no bids are received from existing access providers
(BSPs and Cellular Mobile Service Providers CMSPs) of the
service area, or the lowest bid is higher than the benchmark
calculated using fully allocated current cost method. Low
calling urban direct exchange lines (DELs) are not included
in the USO.
Monitoring the progress of teledensity would be done by
the DoT and not by TRAI or a TRAI-designated independent
agency. The guidelines authorize the DoT to carry out
monitoring and inspection of a service site. The DoT will
also administer the fund. Further, the guidelines imply that
BSPs must fulfil their March 2002 commitments before
becoming eligible for the subsidy from the fund. The
guidelines’ stand is corroborated by the threat issued by the
minister for IT to private BSPs that if they do not fulfil their
obligations, the government may take the extreme step of
cancelling their licences.
The guidelines have allowed terminal equipment to be
funded for Public Telecom and Info Centres (PTICs) and
high-speed PTICs only if funds are left after providing for
the target set to be achieved by 31 March 2002. The
guidelines do not give specification and service standards
of a universal service. It is also not clear on the
implementation of a sunset clause for providing subsidy to
operators.
The DoT has not yet spelt out how long BSNL will
continue to be reimbursed its licence fee. USL is part of
the licence fee for BSPs. In short, the provision,
implementation and regulation of USL are concentrated in
the hands of the DoT and, as of now, BSNL is and will
remain the only beneficiary of the fund. The government
has appointed Shyamal Ghosh, former Secretary, DoT, as
the Universal Service Fund administrator.
The government has allocated Rs 720 crore to BSNL in
the fiscal year 2002–3 for providing 1.44 lakh VPTs.
However, the government has rejected the demand of other
BSOs for financial assistance arguing that VPT obligations
were a part of the bid that they had put in and weightage
was given on the basis of the number of lines and the
number of VPTs to be installed by March 2002.
Rural Roads
Prime Minister’s Gram Sadak Yojana: One of the largest
beneficiaries from the CRF, created out of the levy of Re
1 on petrol and diesel, has been the village roads. According
to the Union Budget, 2002–3, Rs 2500 crore have been
allocated in the fiscal year 2002–3 from the CRF for rural
roads. The Prime Minister’s Gram Sadak Yojana (PMGSY)
is the flagship programme to disburse the allocated sum to
states. The rural-road-connectivity programme is being rolled
out as a programme for economic development and poverty
reduction.
The programme seeks to provide connectivity to all
unconnected habitations in rural areas with a population of
more than 500 persons—estimated at 1.60 lakh—through
quality roads by the end of the Tenth Plan. For the hill states
of the North-East, Sikkim, Himachal Pradesh, Jammu and
Kashmir, Uttaranchal, and for the desert areas, the objective
would be to connect habitations with a population of 250
persons and above. The programme seeks to provide
connectivity to about 158,000 unconnected habitations.
The Ministry of Rural Development has registered itself
as National Rural Roads Agency with the minister as its
chairman. Every state will have to appoint an expert
consultant and take the members of Parliament (MPs) and

members of the Legislative Assembly (MLAs) of that area
into confidence before prioritizing roads.
The World Bank has given, ‘in principle’, clearance to
the rural-road-connectivity programme. The responsibility
of maintenance will be with the Panchayat Raj institutions.
A clause included in the agreement with the contractor is
that the builder would have to bear the cost of major repairs,
if required, in the first five years of construction.
The Tamil Nadu government has initiated a new state-
road policy to develop roads with public–private
collaboration. The state plans to have total connectivity in
rural areas by providing all-weather roads in habitations
with a population of 500 or more before 2004. The
government has already launched the programme, and has
earmarked Rs 245.50 crore for this purpose for the year
2002–3.
Rural Power
Even though the government claims that majority of the
villages have been electrified in the country, not all households
in the villages enjoy the benefit of electricity. Electrification
of a village is defined as electricity having reached the
village. As per the provisional data of CEA, out of a total
of 5,87,258 inhabited villages in the country, 5,09,053 have
been electrified so far, leaving a balance of 78,205 villages
without electricity. The lowest proportion of rural households
electrified are in Bihar (5.6 per cent), Uttar Pradesh (11 per
cent) and Assam (12 per cent).
The Ministry of Power is planning to set up a technology
mission for rural electrification, in line with the proposal
to decentralize the generation and distribution systems for
the rural power sector. The mission’s objective will be to
develop appropriate technologies that ‘suit’ rural conditions.
The mission aims to find the best mix of technologies and
minimal costs and wastages to deliver power to rural places.
It plans to have representations from Bharat Heavy Electricals
(BHEL), Council for Scientific and Industrial Research
(CSIR), Central Power Research Institute (CPRI) and
NTPC. The size of the mission in terms of the financial
outlay will be finalized soon in consultation with the Finance
Ministry.
The government is also looking at the option of
establishing mini power stations with 1-2-3 MW capacities
in rural locations which ‘would also curtail transmission and
distribution expenses’. The proposed technology mission is
primarily expected to evolve ‘new technology solutions’ for
such projects.
Rural Drinking Water
To enable people’s participation in the various centrally-
sponsored water-supply schemes, changes were introduced
The Infrastructure Sector in India, 2001–2 83
since 1999 to institutionalize community participation. The
scheme does not address the drought-affected districts where
people do not have the wherewithal to participate in the
drinking-water scheme with their own contributions. The
reforms introduced advocate a paradigm shift from a
centralized, government-oriented and supply-driven rural
water-supply programme to a decentralized people-oriented
and demand-driven one and envisage shifting the role of
the government from that of a service provider to a
facilitator.
And yet, the Ministry of Rural Development has
sanctioned Rs 3065 lakh to Uttar Pradesh and Uttaranchal
for providing drinking water to the rural areas under the
centrally-sponsored Accelerated Rural Water Supply
Programme (ARWSP) of the Rajiv Gandhi National
Drinking Water Mission for the year 2002–3.
INFRASTRUCTURE FOR AGRICULTURE SECTOR
To provide a thrust to food and agriculture infrastructure,
the government has taken a number of initiatives. It allowed
‘future’s exchanges’ in sugar in November 2001, and similarly
futures trading in other agriculture commodities in a phased
manner. The futures exchanges may stimulate infrastructure
investments for developing delivery terminals, quality
laboratories, post-harvest infrastructure, transportation and
other logistics support. In pursuance of Exim Policy 2001,
the central government has approved the establishment of
20 Agri-Export Zones (AEZs) to promote agricultural exports
of specific products.
Following the adoption of a National Policy on Handling,
Storage and Transport of Foodgrains, which gave ‘infrastructure
status’ to bulk grain-handling and transportation, the Food
Corporation of India has invited expression of interest from
the private sector to bid for construction, operation and
maintenance of such facilities. The cost of these projects is
in the range of Rs 350–750 crore.
An inter-ministerial task force on Agriculture Marketing
Reforms has recommended that investments made by private
partners in setting up of marketing infrastructure be accorded
infrastructure project status rendering them eligible for tax
breaks under Section 10 (23G) of the Income Tax Act of
1961. The central government is keen on getting states to
include an enabling provision in their respective Agriculture
Produce Marketing Acts allowing the private sector to
establish their own market yards.
The central government is working on a new agricultural
policy which includes removing restrictions on interstate
movement of commodities as part of efforts to promote
farm exports. The new policy will also assist corporates
interested in export-oriented contract farming.
84 India Infrastructure Report 2003
CONCLUSION
The central government reform programme in the power
sector has irrevocably moved toward changes in the
distribution system. The APDRP is to ensure that users get
quality power, and pay for power they use, within a few
years. Privatization of DISTCOMS of the DVB is a
beginning in the right direction, though carrying distribution
reform to other states would entail the direct subsidization
of power used for irrigation.
Within the transportation sector, there have been some
efficiency gains in ports through privatization of ports’
services and privatization of ports’ berths. The railways, too,
are moving on the reform path. However, it is reluctant to
change the institutional framework. Concor has made the
beginnings towards providing complete logistics services to
customers.
The quality of highways will improve in a big way in the
coming years. The government has made rapid progress in
the implementation of the NHDP. The standard unit rate
civil works contracts with the incentive system ensures timely
construction of the GQ. Policy on long-term O&M contracts
REFERENCES
Government of India (2002a), Mission 2002: Power for All, Ministry
of Power, New Delhi.
—— (2002b), Annual Report (2001–2) on ‘The Working Of State
Electricity Boards & Electricity Departments,’ Planning
Commission, New Delhi.
—— (2002c), National Water Policy, Ministry of Water Resources,
New Delhi.
—— (2002d), Survey conducted by TRAI to assess QoS provided
for the newly developed GQ is under consideration to
ensure that the quality of the roads does not deteriorate and
transportation cost of goods and services is reduced
significantly. The initial experience of the annuity-based
BOT contracts is encouraging with the added advantage of
deferred payment and assured long-term maintenance of
the roads. The Central Road Fund Act requires institutional
and legal changes to encourage private-sector participation
in building and maintaining the highways. The critical issue
of active user participation in the management of the CRF
to ensure that user-charges form a link with the road services
provided to users is yet to be addressed.
Tariffs in the telecom sector have come hurtling down
as competitors fight it out in the market place. In no sector
of the economy have prices come down so fast as in the
telecom sector. In other sectors many more enabling
initiatives, and their detailing, are awaited. Increasing
pragmatism on the part of the government, and
entrepreneurship of Indian business, is bound to provide
better infrastructure services at affordable prices in the years
to come.
by BSOs/CMSOs, Summarized Results, October–December,
2001, Telecom Regulatory Authority of India, New Delhi
—— (2001a), Blueprint for Power Sector Development, Ministry of
Power, New Delhi.
—— (2001b), Integrated Transport Policy, Planning Commission,
New Delhi
World Bank (2002), India’s Transport Sector: The Challenge Ahead,
South Asia Region, World Bank, Washington, D.C.