As India's economy soars, its airports and roads can't keep up

Indian airlines just ordered a fleet of new planes. But red tape and bureaucracy mean infrastructure lags.

The Indian jet set are about to get more jets. Last week, Indian Airlines, the state-owned domestic carrier, announced a new deal to replace its entire fleet in one go by ordering 43 new aircraft from the European plane-maker, Airbus.

This $2.3 billion plane-buying spree is just one sign of an increasing appetite for travel from India's middle class - 330 million and growing - who suddenly have more cash to spend and willingness to spend it. Passenger numbers are expected to triple to around 50 million from 14 million over the next five years.

But this same spree has put Indian airport authorities in a pinch. There's nowhere to put the planes: Indian airports are already bottlenecked, and aviation planners are having difficulty keeping pace with the growth.

"I've worked in a lot of countries, and India has a rule for everything, and then some," says George Tharakan, the lead transport expert at the World Bank in New Delhi. "That tends to have restraints on the expansion of infrastructure to keep pace with the booming economy."

Welcome to the bittersweet reality of India's economic boom. The Indian economy is growing at an average 6.5 percent annual rate - closer to China's 10 percent growth rate than to America's 4 percent. But while the private sector is moving quickly to develop the country, it is being hampered by sluggish government decisions about expanding roads, electric power plants, and water systems.

The implications are stark. In a globalized economy, where investors can go wherever the prospects are best, India can hardly afford to postpone expensive infrastructure work.

According to a recent World Bank report, nearly a third of business owners in India said that infrastructure - from unreliable electricity to potholed roads to airports - was a major or severe obstacle to the growth of their businesses.

The World Bank is promising some funds for infrastructure development. And this month, the Asian Development Bank offered to double its assistance to India to $3 billion annually. It also expressed its keenness to invest in the infrastructure sector, including energy, urban development, rail freight corridor, roads and airways.

"Money has not been the problem," says Mr. Tharakan, referring to a slew of delayed World Bank-funded road and infrastructure projects, including a refurbished highway from Delhi to Calcutta. "There's enough money. It's the administrative arrangements that have to get done, the number of agencies that have to be dealt with. It's quite mind-boggling."

The economic reforms of the early 1990s were supposed to have taken care of some of this.

Back in 1991, when India's government came so close to bankruptcy that it was forced to liberalize its old state-run economy, the government of Prime Minister Narasimha Rao - and particularly the economic team led by the man who would later be prime minister, Manmohan Singh - did away with all sorts of licenses and rules that simply slowed things down.

Much has changed, and yet, much has not.

Business leaders say the Indian government still tends to get in the way of development, rather than creating the conditions where growth can occur.

Terry Hill, chairman of the Arup Group Ltd., recently complained at a news conference in New Delhi that the Indian bureaucracy needed streamlining, saying, "Infrastructure is a high-risk game and we have seen projects getting delayed and going grossly over budget."

The answer, he said, was to continue going for private-public partnerships, where the private sector can provide the management expertise to get projects finished.

In a recent interview with the Asian Age newspaper in New Delhi, the chairman of the Airports Authority of India cast blame on the booming new private carriers for the overcrowding at airports, rather than on the airports' inability to meet demand.

"All airlines want to have their base in either Delhi or Mumbai," said K. Ramalingam. "Why can't they move to other smaller towns to park their aircrafts?"

The airlines, for their part, argue that they should go where the customers are.

Indian Airlines' recent buying spree is, in fact, a belated response to increasing competition by a number of both high-end and low-cost competitors. Today, private carriers - from the business-oriented Jet Airways and Sahara Airlines down to the new cut-fare rivals Air Deccan and SpiceJet, control 65 percent of all domestic air travel.

That trend is only likely to continue. SpiceJet, for instance, has bought more aircraft as part of its rapid entry into the low-cost air travel market - a niche modeled after America's Southwest Airlines that has already attracted two other new carriers, Air Deccan and Kingfisher.

Foreign airlines have also been boosting their routes to India, which is evidence that not only are Indians flying more, but more outsiders are flying to India. Tourist travel in the month of August this year is up 15.6 percent over the same period last year, with 2.37 million travelers coming to India. To meet that demand, British Airways announced that it would add 26 new flights per week between India and Britain.

While this is great news for hotel and tour operators, the big question now is whether India's airports can be made ready for all these travelers and planes.

"The situation will improve in a year or two," says Praful Patel, India's minister for civil aviation. The government is already recruiting new air traffic controllers, and when Indian privatizes both the Delhi and Bombay airports, work will begin to build new runways to help increase capacity.