Model Answer

Roads and Highways Sector: Driving Physical Infrastructure Growth in India

India’s roads and highways sector, with a vast network of approximately 63.72 lakh km (second largest globally), plays a critical role in infrastructure growth by contributing over 3.6% to GDP. Roads support over 85% of passenger traffic and 65% of freight transport, making them a fundamental part of India’s logistics and connectivity. The following factors explain how the sector is anticipated to drive infrastructure growth:

1. Supporting the Logistics Sector
   Roads and highways enhance logistics efficiency by reducing transportation costs and improving cargo handling. This improves supply chain management, lowering turn-around times for goods transport and bolstering the overall logistics sector (source: provided content).
2. Integration with Other Transport Modes
   Road infrastructure serves as a feeder system for other transportation modes (e.g., railways, airports, and seaports), enabling a seamless multi-modal logistics network and facilitating trade across the country .
3. Promoting Urban Development
   New urban centers and satellite towns emerge around road networks, facilitating easy access for the workforce and fostering economic activity in once-remote areas .
4. Addressing Development Deficits and Regional Integration
   Road development in under-served regions allows access to essential services such as healthcare, education, and internet connectivity, further integrating isolated areas. For instance, projects like the Zojila Tunnel on the Srinagar-Leh road open up new economic opportunities in challenging terrains .

Key Factors Causing Delays in Road Infrastructure Projects

Despite these advantages, delays affect 407 of 717 projects in this sector (source: Ministry of Statistics and Programme Implementation). The primary causes of delay include:

1. Financial and Land Acquisition Issues
   Insufficient project feasibility studies, underestimation of costs, and the complex, lengthy land acquisition process hinder timely project initiation.
2. Planning and Procurement Challenges
   Delays in site handover, project approvals, contract awards, and machinery procurement further disrupt schedules .
3. Execution and Decision-Making Bottlenecks
   Slow decision-making, weak inter-departmental collaboration, and poor contracting practices lead to project slowdowns .
4. Inadequate Project Monitoring
   Ineffective project monitoring, inadequate delay penalties, and insufficient technical staff exacerbate delays.

India’s roads and highways sector is poised for growth, yet overcoming these challenges is vital for realizing timely project completion and sustaining infrastructure development.

Model Answer

Introduction

Special Economic Zones (SEZs) are designated areas where business and trade rules differ from the rest of the country, offering special privileges to businesses operating there. Despite their potential to drive economic growth, SEZs in India have faced several challenges leading to slow growth and underutilization. The Development of Enterprise and Service Hubs (DESH) Bill, 2022 has been proposed to address these challenges and revamp SEZ legislation in line with global standards.

Key Reasons Behind Decline in SEZ Growth and Underutilization:

1. Inadequate Infrastructure and Services:
   • Many SEZs lack essential infrastructure such as proper roads, power supply, water resources, and efficient transportation.
   • Without proper facilities, businesses are reluctant to set up operations, leading to underutilization of these zones.
2. Land Acquisition and Rehabilitation Issues:
   • Acquiring land for SEZs has often faced protests, legal disputes, and delays, making the process difficult and time-consuming.
   • More than 1 lakh acres of land within existing SEZs remain unutilized due to land acquisition challenges.
3. Complex Regulatory Procedures:
   • The bureaucratic processes involved in setting up and operating in SEZs are cumbersome, often leading to delays in obtaining necessary permits and clearances.
   • These challenges discourage potential investors who seek a smoother business environment.
4. Global Economic Factors:
   • Economic downturns and fluctuations in global markets have reduced demand for goods produced in SEZs, leading to their underutilization.
   • Out of 272 operational SEZs, only a few have active units, accounting for less than 20% of India’s total exports.
5. Lack of Connectivity to Domestic Markets:
   • Some SEZs are located in remote areas with poor connectivity to domestic markets, limiting their access to consumers and hindering industrial growth.
6. Labour and Skill Challenges:
   • SEZs have faced difficulties attracting skilled workers due to factors such as location, poor working conditions, and competition from other sectors.
   • Despite 272 operational SEZs, they provide employment to only 28 lakh people, indicating underutilization.
7. Sunset Tax and Policy Changes:
   • The introduction of minimum alternate tax (MAT) and the sunset clause, which limited tax exemptions, has diminished the appeal of SEZs.
8. Outdated Legislation:
   • The SEZ Act, which was framed over 17 years ago, is no longer aligned with current economic and global trade conditions.

How the Development of Enterprise and Service Hubs (DESH) Bill, 2022 Addresses These Issues:

1. Paradigm Shift in Focus:
   • The DESH Bill aims to shift the focus from export-centric zones to hubs that promote domestic investments and economic activity.
   • It integrates multiple economic zone models, including SEZs, coastal economic zones, and textile parks, creating a more cohesive framework.
2. Single Window Portal:
   • The DESH Bill introduces a single online portal for time-bound approvals, streamlining the process for establishing and operating hubs, reducing bureaucratic hurdles.
3. Boost to Economic Activity:
   • The bill allows SEZs to sell in domestic markets more easily, transforming them into service hubs, and removing the strict export obligations of the past.
   • This transformation will foster increased economic activity and job creation.
4. State Engagement and Integration:
   • The DESH Bill empowers states to integrate industrial parks with SEZs, fostering greater collaboration and development across the country.
5. Tax Incentives for Developers:
   • Tax benefits for companies and developers will be provided, similar to SEZs, but without the export obligations, encouraging more businesses to invest in these hubs.
6. Transformation of Infrastructure:
   • Ports, airports, depots, and land stations will be transformed into Development Hubs, which will have both processing and non-processing zones, boosting their overall utility.

Model Answer

Despite a significant increase in capital expenditure, the operating ratio of Indian Railways (IR) has not shown improvement due to several interrelated factors:

1. Cross-Subsidization of Passenger Services: A major issue is the substantial loss incurred from passenger services, which amounted to ₹68,269 crore in 2021-22. This loss effectively nullifies the profits generated from freight traffic, leading to a deteriorating operating ratio .
2. Rising Debt Levels: The Indian Railways has been increasingly reliant on Gross Budgetary Support (GBS) and Extra Budgetary Resources (EBS) to fund its operations. Currently, approximately 17% of its revenue receipts are allocated to servicing debt, which has escalated due to a lack of surplus funds .
3. Declining Modal Share: The modal share of Indian Railways in freight transport has significantly decreased, dropping to around 27% from over 80% at the time of independence. This decline is attributed to stiff competition from road transport, particularly in coal transport, where rail’s share fell from 70% to 60% between 2011 and 2020 .
4. Fluctuating Net Tonne Kilometres (NTKM): The NTKM, a key performance indicator for freight efficiency, has shown inconsistent growth. Over the seven years ending in 2021-22, NTKM grew at an annual rate of only 3.5%, which is considerably lower than the growth rate of road transport .
5. Decreasing Earnings: In FY 2021-22, Indian Railways reported a loss of approximately ₹15,000 crore. This decline in net revenue has been exacerbated by rising staff costs following the 7th Pay Commission, the adverse impacts of the COVID-19 pandemic, and various social service obligations .

The Parliamentary Standing Committee has recommended that the Ministry of Railways implement measures to enhance operational efficiency, improve capacity, and increase non-fare revenues to address these challenges effectively.