Cranes, Trains, and Crooked Deals

In a matter of minutes, 10 percent of the world’s population was thrust into darkness. Infamously overcrowded trains ground to a halt. Traffic jams descended into further chaos as signals went blank. Coal miners deep beneath the earth stood trapped. On July 30^th and 31^st, 2012, India witnessed the worst blackout in its history and, indeed, the history of the world. Nearly 700 million people fell victim to India’s painfully inadequate and failing infrastructure, a phenomenon stemming from decades of underinvestment, poor planning, and government incompetence.

As millions carried on under the dim, flickering glow of candle light, the country’s government executed a tragically ill-timed cabinet shuffle. And in the ultimate display of political tone-deafness, the Minister of Power — the man ultimately responsible for the grid failure — was promoted to the even more prestigious role of Home Minister. “The country is in safe hands,” said the chairman of the state-owned Power Grid Corporation, “…this is not new to us”.

For the people of India his words are lamentably true — in one aspect. Onlookers need only remember back to January 2001, when much of Northern India fell into a similar darkness. However, the nation is in anything but “safe hands”. The shoddy state of India’s power grid pales in comparison to the larger nightmare that is India’s infrastructure. Congested roads, decaying bridges, archaic rail lines, and insufficient electricity networks are all palpable legacies of colonial rule, literally crumbling under the progress of a teeming emerging nation. Since India’s independence from British rule in 1947 its population has grown by nearly 260%, but much of its infrastructure has remained unchanged.

The trouble for India lies not in the amount of investment, but in the management of it. Estimates peg the amount of infrastructure investment in India at around 8% of GDP, relatively close to that of China, at 9%. Both countries have comparable populations in scale, and have undergone similar reform in the way of trade liberalisation and decreased government intervention. However, the two nations have experienced remarkably different trajectories with respect to the quality and expansiveness of built infrastructure. In Europe, infrastructure investment is slightly lower at around 5% of GDP.

Transmission and distribution losses (as a % of total output)

For many it has become a regular pastime: measuring India’s economic development against its fellow and slightly more populous BRIC nation, China. The relationship between the two countries has at times been tenuous, but India can’t help but look to China in admiration of its superior infrastructure. Since the turn of the century, China has expanded its national expressway system by more than 700%, or 85,000 km, creating a sprawling network of roadways comparable in quality to any in the U.S. or Europe. In China, power outages are exceptionally rare; and in the case that one does occur, those responsible are more likely to be exiled than promoted. Such infrastructural soundness is no doubt part of the reason that China has experienced greater economic growth and prosperity than India. However, growth in China comes at the price of democratic freedom — in a nation where all land is effectively state-owned, and political power is centralized, projects are reliant on only a handful of people’s decisions; for many Indians, that is a price they are not willing to pay.

When questioned about the lack of infrastructure progress in India as of late, Dr. Rajiv Lall, the vice chairman of India’s Infrastructure Development Finance Company said “like every well-functioning democracy, we only get things done when we are in a mode of real crisis.” Such is the paradox of many societies. Just look to the United States: it took 9/11 to bring about marked changes in domestic and international security policy, the global financial crisis in 2008 to bring about new regulatory reform, and now the shooting in Newtown, CT, to reinvigorate the national discourse on gun control. The question, then, is whether or not India’s massive blackout has the makings of the proverbial “tipping point” — can the suffering it inflicted, and the national embarrassment it evoked, change half-a-century’s worth of political apathy? From what we’ve seen so far, the answer is a resounding no.

A highway to hell, and a bridge to nowhere

The problems stretch much deeper than just power. India’s roads, highways, bridges, ports, and airports are all in equally dire straits. More and more people are squeezing onto roadways impoverished in both breadth and quality. These same roadways come and go at the hands of India’s monsoons.  Rare engineering marvels like the Bandra–Worli Sea Link, an 8-lane, 6 km bridge that links two Mumbai suburbs, stand against a backdrop of unfinished, over-budget, and failed projects, largely the result of political scuffling and corruption.

India’s moneyed elite can often be seen racing across the bridge in imported supercars at breakneck speeds, only to slow to a crawl as they rejoin rickshaws, and reality. It’s a dichotomy of grand proportions, and not an uncommon one. The glitz and glam of India’s crown jewel, Mumbai, stands in stark juxtaposition with the neighbouring rural villages. Infrastructure in the latter is even more dilapidated.  The end of 2011 saw a wave of deadly bridge collapses, with more than 50 fatalities in less than a month.

Iconic images of trains with people hanging off the side and crawling over the roof depict daily realities for many. In Mumbai, railcars approved to carry 1700 people routinely carry up to 4500 passengers during peak hours. The degree of underinvestment in this sector is decidedly clear when compared to that of China, which is decades ahead in railway infrastructure with no signs of slowing down.

Looking ahead to 2030: Railway construction estimates

Asset value ($ billions)

In India, talk is cheap. Recently, top government officials have repeatedly declared their ambitions to invest more than one trillion dollars in India’s infrastructure. However, India has a long history of failed projects and poor execution, and this time appears to be no exception. Some 60% of projects are marked by cost and time over-runs. A recent McKinsey report declared that “early signs of implementation challenges are already visible.” It went on to detail a lengthy list of troubling bottlenecks that are materially hampering infrastructure construction. Poor design, planning, and engineering, inefficient procurement and tendering processes, flawed dispute resolution mechanisms, and an absence of lean construction principles were all cited.

Even more pervasive than the above shortcomings is an Indian hallmark present in more than just the infrastructure space: corruption. Transparency International’s Corruption Perceptions Index, an annual ranking of the public’s opinion of the level of corruption in the public sector, listed India at 36 (where 0 represents “highly corrupt”, and 100 represents “highly clean”), and rightfully so. Stories of graft hail from the lowliest officials to the highest government and corporate ranks. In March of 2012, the World Bank sent a formal letter to the government of India alleging corruption in three of the highway projects that it helped fund.

The numbers

The same McKinsey report noted that in 2017, India’s infrastructure struggles could cause it to lose up to $200 billion, or roughly 10 percent of its total current GDP. This equates to between one and two percentage points of GDP growth.

GDP, current prices ($ trillions)

Persistent macroeconomic headwinds and a fragile global recovery are severely constraining capital flows, and eroding investor confidence. Once-beloved PPP’s, or Public-Private-Partnerships, have been the first to die. Collaboration between the public and private sector has defined infrastructure growth in recent history ($225 billion was invested by the private sector in infrastructure between 2007 and 2012). However, land-acquisition mishaps, bureaucracy, rampant corruption, and economic uncertainty have left many private firms running for the hills, along with their chequebooks.

Concluding thoughts

Taking a step back, India is still a bustling emerging market economy, growing at around 7% a year. It has strong demographics, with more than 50 percent of the population under the age of 25, and 65 percent under the age of 35; nascent signs of favourable foreign investment reform, with the recent approval for the entrance of foreign supermarkets; and an admirable secular liberal democracy in a region with few, even if it is occasionally overshadowed by corruption, and an expected degree of messiness inherent in a country of almost 1.3 billion people.

However, India’s growing infrastructure nightmare is like an anchor digging deeper and deeper into the ocean floor. In reality, India’s current economic performance is like a Ferrari running on regular fuel: still impressive, but underachieving nonetheless. To take that analogy one step further, over time that engine will slowly degrade, and so too will India’s ambitions and likelihood of being a major player on the global stage. Not only are crumbling roads, deadly bridges, and record-breaking power outages an impediment to economic progress, they are a national embarrassment unbecoming of the country that India wants to be and, with the proper reform, can be.