By land, by sea

Going by the dramatic cuts in telecom rates over the past few years, and now in port tariffs for coastal shipping (these are to be cut by up to 40 per cent) as well as for airports (landing charges are to be cut 15 per cent), India’s infrastructure reforms appear to be yielding dividends.

Since the argument has been that Indian firms are uncompetitive because of the high cost of infrastructure services, the message now is that the problem is being addressed.

Even in real estate costs (and office as well as factory space are significant elements of cost), the opening up of the real estate market has meant that rentals have dropped across the board. However, as soon as one acknowledges the positive changes, it becomes immediately obvious how much more needs to be done.

For instance, the general scarcity of airline seats into and out of India has kept air fares very high; this is only now beginning to be addressed.

Under the prime minister’s roads programme, there are a lot more highways being constructed now than before. The new highways will speed up truck traffic, and therefore help save both time and money.

But equally, there is little progress in reforming octroi and state sales taxes; so truckers continue to wait for hours at check posts, adding to the cost of transport — especially for non-coastal producers who need to get to ports as quickly and cheaply as possible.

In power, despite almost 15 years of reform effort, electricity rates have kept going up, not down — primarily because cross-subsidisation has not been reduced and there is still too much theft.

According to a firm-level survey by the World Bank and the CII last year, electricity charges in India are much higher than in China; in fact, Indian firms lose around 9 per cent of their output every year due to power failure (as against 2 per cent in China).

As a result, two-thirds of Indian firms have generators, compared to a fourth in China. For small firms, according to the survey, investing in a generator can lock up as much as a sixth of total capital.

All this means that, for industries like textiles or electronics, Indian firms spend one to two per cent of their turnover on extra energy-related charges, in comparison with their counterparts in countries like China and Indonesia. That could spell the difference between winning and losing an export contract.

Even in the ports, though turnaround times have halved, Indian port charges are much higher than elsewhere; and most Indian cargo still has to go through transshipment at Colombo, Dubai and elsewhere — adding to shipping charges.

As for the Railways, the continuing cross-subsiding of passenger traffic by freight traffic means that business users are paying tariffs that are at least 50 per cent too high. None of this is helping Indian business get more competitive, so the reform process is very incomplete.

Given how much ground there is still to cover, it is distressing that some recent moves will end up raising the cost of infrastructure. In the power sector, the government continues to dilly-dally on open access, and regulators aren’t moving fast on granting second distribution licences in even the few areas, like Delhi, that have allowed private sector players to distribute electricity.

Indeed, the government is currently debating a proposal to move back to guaranteed returns and thereby putting an invisible floor to tariffs.

In the telecom sector, the regulator has introduced distortions that will lead to tariffs going up once again — the Access Deficit Charge that is supposed to subsidise the state-owned BSNL, for instance, will lead to international call rates going up (they are already higher than is the case in countries like the Philippines, which compete with India-based firms for the global BPO business).

In short, infrastructure reform has a long way to go.