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Wednesday June 19, 2024

Modi’s electoral run banking on India’s infrastructure boom

By News Desk
May 29, 2024
Indias Prime Minister Narendra Modi (C) speaks to media at the opening of the budget session of Parliament in New Delhi on January 31, 2023. — AFP
India's Prime Minister Narendra Modi (C) speaks to media at the opening of the budget session of Parliament in New Delhi on January 31, 2023. — AFP

If there’s one thing an ice cream business needs, it’s reliable freezers -- especially in India’s punishing summer heat. So when refrigerated trucks owned by Vadilal Industries Ltd in Gujarat would break down on the dusty, potholed roads to customers across the country, Managing Director Rajesh Gandhi had a problem.

“Our air-conditioned vehicles always came back with a breakdown -- the pipes were leaking,” he said, rendering the ice cream in his trucks a sticky, unsalvageable mess about once in every 25 deliveries, reports Bloomberg.

Thanks to the freshly tarred highways built over recent years, his loss rate is now close to zero. Meantime, the spread of dependable electricity to more villages across the country has opened up more markets to his ice cream. Business is growing as much as 18 per cent a year, Gandhi says.

It’s those sort of success stories that Prime Minister Narendra Modi is hoping will support his campaign for a third term in office. He’s spent billions -- and sought to reap political dividends -- from a nationwide upgrade of the country’s roads, railways, airports and seaports, as well as big outlays on digital infrastructure like new data centers, fiber-optic lines and an expanded digital payments system.

The goal, Modi and allies say, is to push the country’s growth to new heights by boosting connectivity, cutting business costs and making India a more attractive destination for manufacturers and foreign investors looking for an alternative to China.

The task won’t be easy. India still suffers from notoriously high logistics costs, with cities choked by traffic and plagued by environmental problems. New construction projects are running into old headwinds, like challenges obtaining land, completion delays, the Covid pandemic, and quality problems. And while improvements like new highways and high-speed rail are winning praise from business leaders, opponents have accused Modi of focusing too much on glitzy projects that don’t benefit the poor.

Then there’s the financing, which is reliant on the state after an infrastructure debt bust in the 2010s left many private lenders wary. In December, the International Monetary Fund warned it expected India’s public debt to rise to 82.3 per cent of gross domestic product this fiscal year, leading to “substantial gross financing needs” even as it praised India’s infrastructure initiatives.

Unperturbed, government officials say India’s infrastructure needs justify the eye-watering sums set for new projects. In February, Modi’s government in its annual budget unveiled the country’s largest-ever spending allocation on capital expenditures of 11.11 trillion rupees ($133 billion), a jump of more than threefold from five years ago.

Over the next two years, 44.4 trillion rupees ($534 billion) worth of new infrastructure is set to come online, equal to the inflation-adjusted value of all infrastructure built in the last 11 years, according to Bloomberg Economics. That spending is expected to help lift economic growth to 9.0 per cent by 2030, Bloomberg Economics said.

Ashwini Vaishnaw, India’s minister of railways and technology -- a top official in its infrastructure buildout -- says the outlays are sustainable because the country is on a sounder financial footing these days, and the building of infrastructure itself generates growth and creates new jobs and tax revenue.

“Unlike the rich world, which has spent on consumption, sending out checks and bloated the balance sheets of their central banks, we are in a much healthier shape,” he said in an interview.

The pace of new building is swift. The government says India is laying as much as 37 kilometers of new highways a day, boosting the total length by 60 per cent during Modi’s time in office to 146,000 kilometers. On the country’s already-vast rail network, spending has focused on station upgrades and electrification, while more than 80 new airports have been built in the last decade.

Much of it fits into a broader vision for a more efficient, digitally linked India: As digital infrastructure like electronic toll collections and a QR-code payment systems gains wider adoption, administrators foresee the end of old infrastructure snarls like endless tollbooth queues bottlenecked with cash-paying drivers. The hope is that linking digital and physical infrastructure will make projects like new expressways and high-speed trains run more efficiently.

Modi has sought to tether his image as a nation builder to the boom, appearing at countless ribbon-cutting ceremonies. His party devoted more space in its election manifesto to infrastructure than any other subject. It’s a positive talking point for Modi’s Bharatiya Janata Party amid high inflation and joblessness, and a shortage of much-needed manufacturing jobs.

Signature projects include a new highway connecting New Delhi with the financial capital of Mumbai. The eight-lane expressway is expected to cut transit time between the two cities in half to around 12 hours, though its completion has faced delays due to land acquisition issues. India’s first bullet train, from Gujarat’s biggest city of Ahmedabad to Mumbai, is expected to speed thousands of passengers a day in just a few hours between the cities, though it too has been beset by delays.

The site of the forthcoming Ahmedabad bullet train station underscores the project’s promise and scale. Little more than a concrete skeleton for now, the new station sits atop Ahmedabad’s existing metro network and a conventional rail station, spanning almost half a kilometer in length. During a recent tour, officials said they’re building the station to handle more than 100,000 passengers a day, about half as many who pass through London’s Heathrow Airport.

The train line has faced familiar obstacles. First conceived almost a decade ago and backed by Japanese technology and government support, it has been held up for years due to delays in acquiring needed land from farmers. It originally targeted a launch date of last year, but only in January did the government announce it acquired all the needed land. Last month the government entity behind the project said it couldn’t assess a completion date but Vaishnaw has said the train is expected to begin running in 2026. Critics, including Modi’s rivals and a former central-bank official, have called the project wasteful. Business executives, though, say the project could tie together the region’s chemicals corridor.

Modi’s infrastructure initiative isn’t limited to physical projects. In recent years, India has also vastly expanded its digital infrastructure, a signature effort being the expansion of the country’s ‘Aadhar’ programme, the country’s answer to the US social security number. Though the previous government began using Aadhar as a tool for direct transfer of welfare benefits to Indian households, Modi has vastly expanded it to a 36.1 trillion-rupee program.

Modi has also pushed for greater roll-out of cashless digital payments, with India’s QR-code based payments system replacing cash everywhere from supermarkets to streetside tea shops. In April, the payments network, known as the Unified Payments Interface, or UPI, processed 19.64 trillion rupees in digital transactions.

The planned city of Dholera, located around two hours south of Ahmedabad by car, illustrates the scale of Modi’s ambition and the challenge in executing it. Officials envisage a ‘smart city’ of high-tech factories, solar energy farms and leafy housing developments, all knit to a wider regional industrial corridor by highways and high-speed trains and a new international airport that’s set to become operational by December 2025. A promotional video showed to investors describes Dholera as “a new city for a new India” and heralds its “world-class infrastructure” of ample power and connectivity.

Much of the infrastructure is now in place, including two power distribution stations, storm drains and wide new roads. They mostly encircle plots of cracked, barren land. First concieved in 2007 as a high-tech manufacturing hub when Modi was Gujarat’s chief minister, Dholera has faced protests over land acquisition. Officials say the pandemic and complexities involved in building infrastructure to global chip-manufacturing standards have also led to delays, although they now expect a rapid pickup. “Covid issues are behind us. Now work is going on at torrid pace,” the Gujarat state government said in a statement.

This year the project got its first big tenant: Tata Group in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Co. in February announced plans to build India’s first chip fabrication plant at the site, with the first wafers from the plant expected in 2026.

Vaishnaw, the Indian minister, drew comparisons to the postwar investments made by Germany and Japan when describing India’s infrastructure ambitions. “The action plan that we are preparing is for 50 years,” he said. “Otherwise how would you prepare a country for getting that right place in the sun?”