ESSENTIALS OF BUSINESS ENVIRONMENT

Chapter 23
INFRASTRUCTURE

Chapter 23 Infrastructure

Learning Objectives

Understand the role of infrastructure in the development of our economy Trace the growth of energy with its various components Make a SWOT analysis of electricity Trace the growth of transport agents and make SWOT analysis of railways, road and shipping Trace the growth of communication facilities and make a SWOT analysis of this vital sector Rank India among other countries in respect of infrastructural facilities

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Essentials of Business Environment K. Aswathappa

Chapter 23 Infrastructure

Social overheads (another expression for infrastructure) possess four features:

Public goods-available to everybody Externalities-services or benefits far exceed the cost-pricing is a problem Monopolies-these are utilities which tend to be single owned Public sector-owned and operated by government

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Essentials of Business Environment K. Aswathappa

SWOT of Electricity
A. Strengths * Elaborate organisational framework for the growth of electricity has been provided by the Electricity (Supply) Act, 1948. Now, Electricity Act, 2003. * Power and responsibilities neatly divided between centre and states. Former confines itself to planning, co-ordination and regulation. Latter looks after generation and distribution. * Vast network of generation, transmission and distribution facilities spanning the length and breadth of the country * Joint ventures among states in power generation. * Numerous amendments to permit private participation in power generation. B. Weaknesses * Very low plant load factors. * Declining share of hydro-power. * Too much subsidy burden on state electricity boards.

Chapter 23 Infrastructure

strengths, weaknesses and remedies (electricity)

* * * * Incompetent and corrupt electricity boards Frequent and heavy load-shedding Capital intensive but starved of funds Heavy losses during transmission and distribution C. Remedies * Formulate unambiguous guidelines for private sector investment and ensure speedy clearance * Expedite formulation of guidelines for private participation in transmission and distribution * Create autonomous regulatary authorities at the central and state levels * Corporatise SEBs, with separate generation, transmission, and distribution segments * Set cost-based pricing for each consumer group, building in pre-determined tariff increases.

Essentials of Business Environment Himalaya Publishing House K. Aswathappa (Source : Remedies from Business Today, Oct. 22- Nov. 6, 1996)

Chapter 23 Infrastructure

Indian Railways Compared with Chinese

The Long and Short of it China Indian Railways* Railways** 1950 2003 1950-51 2002-03 Route km 22,161 73,002 53,596 63,122 No.of passengers (million) 157 973 973 4,971 Total passengers km (billion) 21 479 63 515 Average journey length (km) 135 492 52 104 Freight carried (million tonnes) 100 2,212 93 543 Freight tonne km (billion) 39 1,724 44 356 Average lead (km) 395 780 470 656 (Source: *Tiedao Zhishi, **Ministry of Railways, India)

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Essentials of Business Environment K. Aswathappa

Chapter 23 Infrastructure

SWOT of Railways
Strengths, Weaknesses and Remedies (railways)
A. Strengths * Historical advantage- 85 percent of track being inherited from the British * Largest in Asia and the third largest in the world * Substantial electrified tracks * Competitive advantage in project consultancy and construction * Agenda for national integration B. Weaknesses * Ever increasing traffic load * Inadequate finance * Low productivity * Low speed of goods as well as passenger trains * Poor service to the passengers * Absence of suitable transportation policy * Too many social objectives * Unslite Travel C. Remedies * Corporatise with detailed terms of reference approved by the Parliament * Unbundle disparate operations like transportation of freight and passengers and equipment-manufacture * Corporatise all manufacturing units and privatise them gradually * Commercialise passenger services by abolishing all free travel, and privatise ticket-checking * Phase out cross-subsidisation of passenger fares, through freight charges, so as to reflect real costs * Make commercial use of railway property by selling or leasing it, to the private sector

(Source:House Remedies from Business Today, October-November,Essentials 1996) of Business Environment Himalaya Publishing K. Aswathappa

Road Transport-SWOT
Strengths, Weaknesses and Remedies (Road transport) A. Strengths * One of the worlds largest, stretching for almost 3.3 million across the country. * Relatively low vehicle density per km. * Ease the burden on railways. B. Problems * Only 1.6 percent of road strength is occupied by national highways, 5.86 percent by state highways and 92.54 percent by district and village roads. Except the national highways, the condition of other roads is pathetic. * Several missing links, unbridged river crossings, weak culverts and inadequate road pavement enroute. * Remote parts of the country are still not connected. * Veritable death traps.

Chapter 23 Infrastructure

* Lack of adequate finance. * Increasing pollution. C. Remedies * Allocate additional resources for upgrading and widening existing national and state highways. * Create a highway development fund as an extra-budgetary development fund for funding highways. * Set up a financing mechanism for funding road construction, using the toll system for cost recovery. * Encourage private sector participation in highways by institutionalising buildoperate-transfer schemes. * Earmark a proportion of the states levies on vehicles and fuels for road maintenance. * Amend the loans to allow for Right of Way in land acquisition for laying roads.

(Source: Remedies from Business Today, Oct-Nov, 1996) Essentials of Business Environment Himalaya Publishing House K. Aswathappa

Shipping-SWOT

Chapter 23 Infrastructure

Strengths, Weaknesses and Remedies (Shipping) A. Strengths C. Remedies * Long coastline of over 5700 kms and almost the whole of foreign trade * Amend the Major Port Trust Act, passing across the seas. 1963, to allow private sector BOT * Largest merchant shipping fleet among projects at the 11 major ports. the developing countries and 14th in * Raise the capital expenditure ceiling the world in shipping tonnage. of the port trust boards from Rs.5 * Skilled and competent managerial and crore to Rs.200 crore. ship board personnel. * Abolish the need for PIB approvals * Huge potential in the wake of India becoming one of the signatories of the for private projects that do not need WTO. There will be considerable port trust investment. increase in sea-borne trade. * Unbundle activities like cargo B. Weaknesses handling and warehousing into profit * Limited cargo handling capacities of centres. ports * Allow port-based businesses to * Challenge from containerisation which create captive facilities for is highly prevalent in advanced countries. themselves under the BOT system. * Fund starving. * Initiate restraining programmes to * Undue hardships to ship owners due to reduce labour resistance to private conversion of FOB items into CIF which sector participation. has been introduced because of decanalisation.
(Source: Remedies from Business Today, Oct 22-Nov 6, 1996) Essentials of Business Environment Himalaya Publishing House K. Aswathappa

Telecommunication
A. Strengths * Huge potential for expansion. * Rapid growth in the last couple of years with annual growth of 13 percent between 1984 and 1994 and 20 percent thereafter. * Relatively high density with 7.97 phones per 100 towns people ahead of China and Indonesia. * High technology- 66 percent of exchanges are digital. B. Weaknesses * Waiting period of nearly two years to get new connections * Poor maintenance- 218 faults for 100 lines every year. * Privatisation efforts not successful.

Chapter 23 Infrastructure

Strengths, Weaknesses and Remedies (telecommunications) C. Remedies * Accelerate the clearance process for private sector entry into basic telecom services. * Offer incentives to private telecom companies for meeting connection and low-fault targets. * Resolve disputes between private operators and the DoT over longdistance connections immediately. * Convert the DoT into a holding corporation, with its subsidiaries operating services in different circles. * Replace the Indian Telegraph Act, 1885 with a new Act incorporating the impact of technology changes.

(Source: Remedies from Business Today, Oct 22-Nov 6, 1996) Essentials of Business Environment K. Aswathappa

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Chapter 23 Infrastructure

Comparisons
Critical Comparisons Per capita energy used* Telephone lines % of paved roads per 1,000 persons in good condition 6 20 8 18 63 30 89 n.a. 66 85 310 70 6 30 24 50 545 85+

India 235 Pakistan 223 Brazil 681 Malaysia 1445 Mexico 1525 S.Korea 2569 Indonesia 303 Thailand 614 USA 7662 *Equivalent to kg oil (Source : World Development Report, 1994)

Himalaya Publishing House

Essentials of Business Environment K. Aswathappa