Conclusions and policy recommendations R. K. Sinha


Infrastructure Most likely scenario



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Infrastructure




Most likely scenario


Energy:

Power and coal:

Against an optimal mix of 60:40 for thermal:hydro power generation capacities, in 1998-99, we had hydro 23%, thermal 74%, nuclear 2% and wind 1%. 85 % of the thermal plants were coal based, 2% were oil based while 13% were gas based. There is a peak shortage of 18% and energy shortage of 11%. High T&D losses, power thefts and unviable tariffs bedevil the power sector. Coal with a reserves of 209 bn tonnes is the mainstay of energy source, and is likely to continue to be so in the coming decades.


To estimate the future demand for power and coal for different growth rates of the economy, some criteria have been adopted. For agriculture, industry and commercial loads, the past trends of energy intensities and relationship with sectoral GDP have been considered. For residential load, the upward movement along the energy ladder and the coverage by rural electrification are the determinants. Projected increase in freight and pipelines have been taken for projecting the needs of the transport sector.

Projected demand for power and coal




Power (TWh )

Coal (MT)

Sectors

1997 2025

1997 2025

GDP Scenario




7%

8%

9%

10%




7%

8%

9%

10%

Industry

101

218

279

356

452

138

717

925

1192

1531

Transport

7

58

69

84

102

0

0

0

0

0

Agriculture

91

149

188

236

298

0

0

0

0

0

Commercial

44

380

485

618

785

0

0

0

0

0

Power
















188

250

400

400

400

Residential

45

2052

205

205

205

0

0

0

0

0

Total

288

1010

1226

1499

1842

326

967

1325

1592

1931

Add 18-22% of T&D losses for power generation


From the above it seems that a growth rate beyond 7% is not feasible considering our capabilities. We will, however, be able to meet the requirements of a baseline growth rate of 6% of GDP. There is also a likelihood of substantial imports of coal, for which adequate port capacities will have to be created.

Oil and gas

Against a demand of 85 million tonnes of POL products, the production was only 61 million tonnes in 1997-98, the balance requirement being met through imports which meant almost 24% outgo of the export earnings. At the current rate of production of crude, India’s reserves are likely to last for only 16 years, an ominous sign, forcing policy makers to seriously think in terms of energy security

Projected demand for oil and gas




Oil (MT per annum)

Gas (Bcm per annum)

Sectors

1997 2025

1997 2025

GDP Scenario




7%

8%

9%

10%




7%

8%

9%

10%

Industry

12

77

99

126

160

3.41

10.14

12.96

16.52

21.00

Transport

41

314

402

513

653

0.08

0.78

0.78

0.78

0.78

Agriculture

1

13

16

20

25

0.13

14.69

18.49

23.28

29.31

Commercial

4

21

27

34

43

0.00

0.00

0.00

0.00

0.00

Residential

13

45

45

45

45

0.24

3.13

3.13

3.13

3.13

Power

8

22

31

61

103

6.94

19.02

26.90

53.14

88.97

Non energy

10

52

67

85

108

10.70

61.22

77.97

99.09

125.64

Total

88

544

686

884

1136

21.50

108.98

140.24

195.94


268.83

Large imports of crude or petroleum products are inevitable, as under the best of conditions, India is unlikely to exceed 80 million tonnes of crude production, and 17.33 bcm of gas and coal bed methane by 2025. The elasticity of energy demand to GDP being almost unity in the developing market economies, sustainable development of our economy calls for a hard look at the options. Accessibility, availability and acceptability, coupled with the volatility in international prices of energy would exacerbate the problems which India would have to face. While the world has ample reserves of oil and gas, global supply prospects are threatened by costs. As the supply chains lengthen with the depletion of the nearest sources of supply, the focus would shift to maintaining the security of international sea lanes and cross border overland gas pipelines. Then there will be the question of establishing LNG terminals for handling imports of liquefied gas at considerable capital cost.


Transport


Due to the inability of the Railways to carry all the freight to all destinations, a modal shift in the mode of transport will take place from the railways to roads. This would, however, entail heavy energy consumption at great economic costs to the country. At the same time, the total length of the state and the national highways must increase considerably from the present level of 7% for the traffic to flow smoothly to all corners of the country. Severe infrastructure bottlenecks in the rail and road transport systems will be experienced. The ports are also likely to be over congested, making it more convenient for large bottoms to offload either at Colombo or Singapore or the like, from where the goods would have to be transhipped at substantially increased costs to the trade and the consumers.


Telecommunications


A teledensity of 150 per 1000 by 2010, as per the National Telecommunications Policy 1999, is within reach. However, the regulatory mechanisms would be overtaken by the convergence of services driven by modern and innovative technologies. The regulatory system would, therefore, be confronted with newer demands on its ingenuity to be able to satisfy the needs of innovative technological advances in the telecom sector.

Conclusions:

To cope with the upsurge in the demand for infrastructural support for a sustainable rate of growth of the economy together with an increasing improvement in the quality of life, there will have to be massive increases in the capacities of such infrastructural support systems. This would entail huge doses of investments. Private sector participation, both for the adoption of the advanced modern technologies for optimality in production and use, and for making available the desired quantum of finance, domestic and international, seems inevitable. It would be difficult for the public sector to take on the total burden on its own, constrained as it is by the lack of adequate resources even for discharging its full responsibilities in the social sectors. With the desired investments and efficiency gains in the infrastructure sectors, it should be possible to achieve a growth rate of 7-8%. It would, however, be difficult to go beyond that. Considering the pace of investments in these sectors, one can safely conclude that a growth rate of 6% in the economy would definitely be possible, and, with some push, we may even see a 7% growth.
External Trade Sector


Optimistic scenario

During the period 1970-2000, the share of the 17 selected developed countries in the total world exports has shown a declining trend from 71.22% to 57.59%. The share of the 13 selected developing countries, including India, on the other hand, has shown a rising trend, from 4.96% to 14.31%. A similar trend is visible in the case of imports as well. This is in conformity with the available literature on the subject which converges on the view that the most of the growth of output and trade in the world will come from emerging developing countries and not the developed countries.


During the period 2000-2025, total global exports are likely to go up from US$ 6001.40 bn to US$ 24885.08 bn, giving a rate of growth of 5.85% pa. Imports, on the other hand, would increase from US$ 6026.48 bn to US$ 14204.79 bn, at the rate of 3.49% pa. There will be a generalised deceleration in the share of total global exports of the 30 selected countries. The projections for imports show a similar trend, although not so dramatic. It clearly shows that in the coming years, the developing countries, including other countries than the ones selected for the study, would also have an increasingly greater share in global trade.

Between 2000-2025, India’s exports, in the optimistic scenario, could well increase from US$ 37.59 bn to US$ 104.55 bn, at a rate of 4.18% pa. However, in terms of the total global exports, our share would fall from 0.63 to 0.42, indicating clearly that we will not be able to optimally exploit the available opportunities. Imports during this period will increase from US$ 43.61 bn to US$ 108.67 bn, that is, at a rate of 3.72% pa. The share in total global imports would increase marginally from 0.72 to 0.77. The total share of India in global trade, on the basis of existing trends and inclusive of both exports and imports, would decline from 0.68% in 2000 to 0.55% in 2025, indicating that the domestic industrial base would lack the buoyancy of an internationally integrated competitive system


Most likely scenario
In this case, global exports are likely to increase from US$ 5876.37 bn in 2000 to US$ 14395.46 bn in 2025, that is, at a rate of 3.65% pa. Imports, on the other hand, would increase from US$ 5947.63 bn to US$ 10085.97 bn, at the rate of 2.14% pa. While the share in the global exports of the 30 selected countries show a dramatic slowdown from 71% to 49%, the share of these countries in the total global imports increases marginally from 75% to 80%. Countries, both developed and the developing, other than the ones selected for the study, will, therefore, be more active in the years to come in global trade.
India’s export performance during this period would see an increase from US$ 34.24 bn to US$ 71.48 bn, at the rate of 2.99% pa. Imports would increase from US$ 40.16 bn to US$ 79.44 bn, giving an average rate of 2.77% pa. Our share in total global exports falls from 0.583 to 0.497, while the share in global imports increases from 0.675 to 0.788. The share of India in the total global trade, both exports and imports included, however, remains almost stagnant, changing from 0.63% to 0.62%. The conclusions are obvious: our industrial base will not be fully integrated with the global system and will not exhibit the buoyancy of an internationally competitive system.
The commodities which show promise for substantial increase in exports are: agriculture and allied products, leather and leather manufactures, chemicals and related products, metals, steel, and gems and jewellery. While there is a very positive case for diversification of the export basket taking into account the new demands in the global markets, the competitive advantage already available in the above commodities should be further enhanced. Projections for imports show a very disquieting feature in petroleum crude and products registering almost 37% of India’s total exports in 2025. This brings to focus the urgent need for consideration of India’s energy security issues.
The important trading partners will continue to be APEC-21, EU-15, IOR-ARC-18 and NAFTA-3 and GCC-6 (for bulk crude imports). Here again, there will be need for diversifying to newer markets. Considering the geopolitical aspirations of China and its economic strength with its joining the WTO, it might be prudent for India to befriend the ASEAN countries politically and economically, to counter the growing influence of China. Greater trading links with these countries might in the first stage mean supplies of intermediate goods from India to these countries at the lower spectrum of value addition, which could be more labour intensive, leaving the upper spectrum involving sophisticated technology and highly skilled labour to these countries. Gradually, India should upgrade itself along the value addition ladder. India should, however, do well on the export of skill and knowledge intensive services. Rationalisation of the tariff structure, the exit policy and the reorientation of its export policy towards skill and knowledge intensive products and services would be the instruments to achieve this. Amongst the important trading countries by 2025, mention may be made of USA, UAE, Germany, U.K., Australia, Singapore, Belgium, Kuwait and Saudi Arabia.


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