The development of infrastructure has always been accorded the highest priority in India’s growth programmes. There has been phenomenal growth in various aspects of infrastructure, as detailed in this unit.
In this section, we review the current state of development in three core infrastructure sectors:
Transport
Communication
Energy
Three notable developmental trends in the Indian transport sector are:
From rail to road dominance: In the 1950s, India was a rail-dominant economy. Today, it is a road-dominant economy, with road transport accounting for:
Over 60% of inter-city freight traffic (tonne-km)
Over 80% of inter-city passenger traffic (pass-km)
Shift in Indian Railways’ focus: The Indian Railways transitioned from being a freight-dominant mode of transport to a passenger-dominant system during this period.
Saturation of existing networks: The main links of both the road and rail networks have become saturated under the current technological and operational setups.
What India urgently needs is holistic planning for its transport infrastructure that aims to:
Minimise energy use and emissions
Maximise competitiveness of domestic industry
The growth of the Indian Railways since its first journey on April 16, 1853, covering just 34 km, has been meteoric. More recent research suggests the first locomotive actually ran on a two-and-a-half mile track between Roorkee and Peeran Kaliyar on December 22, 1851.
Now over 155 years old, the Indian Railway system is the:
2nd largest in Asia (after China)
4th largest in the world (after the USA, Russia, and China)
Managed under a single entity — the Railway Board — and divided into 16 zones, it is:
The largest public sector undertaking in India
The principal mode of transport across the country
Originally developed as a multi-gauge system by several different agencies
It is no exaggeration to say that the railways are the glue which has held India together.
Electrification: About 28% of the total track has been electrified, with approximately 500 route km electrified each year. This promotes faster, safer, economical, and pollution-free operations. Electric locomotives offer higher haulage capacity and lower maintenance costs compared to diesel engines.
Track Upgrades: Trunk routes and main lines are being improved for higher speeds using track recording cars produced in-house. As a result, select trains can now operate at speeds up to 130 km/hr.
Corporate Safety Plan (2003): Lists various programmes and initiatives for improving safety across the rail network.
Unigauge Project (since 1992): Aims to convert all meter gauge tracks into broad gauge, creating a unified track system.
Dedicated Freight Corridors: A Special Purpose Vehicle, the Dedicated Freight Corridor Corporation of India Ltd. (DFCCIL), has been set up to build freight-exclusive routes along:
Delhi–Howrah
Delhi–Mumbai
Mumbai–Chennai
Chennai–Howrah
Asia-Europe Rail Project: India has approved participation in this corridor that will run via Pakistan and Iran, opening cheaper and quicker channels for international trade.
Restructuring Initiative: Following the A.F. Fergusson Report, Indian Railways is undergoing a massive restructuring to better align services with consumer needs.
With the rising need for energy conservation, the importance of rail transport has grown due to its energy-efficient nature. Railways consume significantly less energy per tonne-km compared to any other land transport mode. In fact, they are:
6 times more energy-efficient than road transport
4 times more cost-effective in construction for comparable traffic levels
The only transport mode that can use almost any form of primary energy
Current railway share:
38% of national freight output (down from 90% in 1950)
16% of passenger output (down from 80% in 1950)
The average lead (distance per tonne/passenger) is:
720 km by rail
350 km by road
Nonetheless, 30 million tonnes of freight are still moved by road over long distances (avg. 700 km), especially for small-lot, high-value commodities.
Globally, rail freight should grow:
1.5× faster than GDP (freight)
1.8× faster than GDP (passenger)
India falls below these benchmarks, highlighting underutilisation of rail capacity.
India's ongoing economic reforms aim to reduce government involvement in state-run sectors and promote private enterprise autonomy. However, rail reform is complex, affecting politicians, railway workers, and management.
Total privatisation is currently not feasible due to several challenges:
Indivisibility of assets: Railways require large, lumpy investments that private investors often cannot afford. Assets are not easily liquidated if demand drops.
Vertical integration: Indian Railways is more vertically integrated than most global networks. Technical and operational efficiency demands compatibility between line-haul and rolling stock. Privatisation may risk underinvestment and mismatch.
Complex timetabling: Coordinating a unified national timetable across India’s vast network is not easily replicable by market forces.
High entry/exit costs: The basic infrastructure must still be financed by the state.
Hence, a partial privatisation approach is more practical. The Rakesh Mohan Committee (2001) recommended this route, stating:
“If IR is to survive as an ongoing transportation organisation it has to modernise and expand its capacity to serve the emerging needs of a growing economy… New investment will have to be financed on a commercial basis. This is the challenge facing the Indian Railways.”
The Ministry of Railways launched a major 2010 policy initiative to attract private investment in rail infrastructure. The policy includes development of:
Railway tracks
Private freight terminals
Automobile hubs
Special freight train operations
To raise rail’s share in freight transport, the ministry proposed road connectivity projects over 20 km through private partnerships.
Minimum rate of return: 14%
One key model is the “cost-sharing freight rebate scheme”, offering a 10–12% rebate on incremental traffic moved by private players who invest in line construction.
Additional models include:
Full contribution apportioned earning model: Private entity finances line, receives earnings for 25 years.
SPV model
Private line model
To enhance the modal share of railways in vehicle transportation, the ministry proposed setting up 10 auto hubs at locations like Santragachi, Shalimar, Patna, and Hosur.
Land use: Surplus land leased to private players for 3 years (renewable annually)
Obligation: Hubs must be built and operational within 1 year, or the license lapses
Revenue model: Private players recover costs by charging customers
These hubs will function as aggregation points and local distribution centres.
Revenue expectations: Rs. 1,000 crore per annum. Currently, less than 2% of vehicles are transported via rail, with a target of 15% by 2015–16.
Private players are encouraged to develop and operate freight terminals offering integrated logistics.
License period: 20 years, extendable by 10 years
Terminal Management Company (TMC) pays freight charges to railways
TMC can charge customers for value-added services and manage bookings/deliveries for all goods except outbound coal, coke, and iron ore
The draft policy introduces a Special Freight Train Operation Scheme where private operators:
Invest in and own wagons
Utilise the rail network for 20 years
Charge customers for their own freight services
The condition and extent of road infrastructure reflects a nation’s development level and the strength of its administrative and technical institutions. India’s road network has seen remarkable expansion:
From 4 lakh km in 1950–51 to 34 lakh km today
Average annual growth rate: 4.49%
Total increase: Over 400%
India’s road growth has outpaced all other modes of transport. In 1960, paved roads were 4.5 times the length of railway tracks; now, there are over 10 km of roads for every km of railway track.
This trend has resulted in a shift from rail-led to road-dominated transport in India.
Total surfaced roads: 12.01 lakh km
National Highways: 66,590 km
State Highways: 1.32 lakh km
Rural roads: 26.50 lakh km
While most National and State highways are surfaced, only 13.5% of rural roads are surfaced.
The rural network connects 64% of villages, meaning 36% remain disconnected. Even worse, 55.8% of villages lack all-weather roads.
States with poor rural road connectivity:
Madhya Pradesh: 24% villages connected
Rajasthan: 21% villages connected
Orissa: 15% villages connected
States with nearly full connectivity: Kerala, Punjab, Haryana
Post-economic reforms, the government began encouraging private sector participation in road construction and maintenance due to:
Lack of public funding capacity
Critical role of roads in economic development
Privatisation model: Build, Operate, and Transfer (BOT)
Private firms finance, build, and maintain roads
They collect fees and retain earnings during a concession period
After the period, ownership transfers back to the government
This “user-pays” approach enables roads to be built years earlier than government-only models allow.
Target: Build 10,000 km of expressways over the next 20 years through BOT.
Innovative idea: Government’s proposal for “shadow tolls” — indirect payments to developers instead of direct tolls from users.
Funding challenges: Raising adequate capital remains a core obstacle.
Investment viability: Ensuring consistent and fair returns is essential to sustaining private sector interest and avoiding one-time engagements.
The Rakesh Mohan Committee offered several strategic recommendations for enhancing India’s road infrastructure through greater private participation and innovative funding models:
Four-laning of existing highways to be undertaken using the public toll-road model.
Encouragement of private sector involvement in developing super-national highways, constructing bypasses, and implementing spot improvements.
Highway Development Fund to be set up as an extra-budgetary funding mechanism. Revenue to be generated via a cess on diesel, petrol, commercial vehicles, automobiles, and auto components.
The Government of India has responded with multiple policy initiatives aimed at supporting and accelerating private investment in the road sector:
Amendment of the National Highways Act to allow private sector participation.
Tolling permitted on selected upgraded national highway sections.
The road sector has been granted “industry” status, enabling commercial borrowings by private players.
Government financial support for private developers through models like NHAI equity participation.
Tax benefits: Five-year tax holiday and concessions for the following five years for road projects.
Financial institutions incentivised to provide funding for road sector developments.
Foreign investment liberalisation: Automatic approval of:
Up to 100% foreign equity in construction and maintenance of roads and bridges (limit: Rs. 1,500 crore).
Up to 51% foreign equity in transport support services like toll road operations and highway tunnels.
Many parts of the National Highways Development Project (NHDP) have been completed. The focus must now evolve from construction to effective “corridor management”.
This involves:
Optimising throughput in terms of vehicle speed and volume.
Minimising accident-related economic losses.
Enhancing road safety as a national priority, especially considering India’s limited experience with high-speed roadways.
With a coastline of over 5,700 kms and almost all of its foreign trade moving via sea routes, India’s shipping industry plays a critical role in economic growth. Key objectives of shipping development include:
Saving and earning foreign exchange.
Establishing a robust maritime transport infrastructure to promote exports and reduce import costs.
Creating a marine economy that can eventually exploit India's underwater resources.
India currently has the largest merchant shipping fleet among developing countries, ranking sixteenth in the world by shipping tonnage. The fleet is categorized into:
Overseas shipping: 366 ships with a total of about 90 lakh GRT.
Coastal shipping: 693 ships accounting for 100 lakh GRT.
Notably, about 50% of India’s merchant fleet is owned by the Shipping Corporation of India. However, the average fleet age of 15.2 years is above the global average of 12 years.
After showing initial growth, Indian shipping faced a stagnation period from the 1980s until about 1996. In 2004-05, the government allowed 100% FDI in shipping via the automatic route, aiming to:
Level the playing field for Indian companies against international competitors.
Boost Indian tonnage, which grew steadily from 6.94 million tons in 2004 onwards.
Despite improvements, India’s shipping sector suffers from serious structural issues:
Failure to acquire containerships after the 1970s, impacting container cargo capacity.
Decline in liner cargo tonnage.
Minimal share in high-value cargo transport.
India’s shipping industry holds several advantages:
Skilled managerial and shipboard personnel.
Profitable balance sheets in both public and private sectors.
A conducive investment climate.
To capitalise on these, the industry should draft a development blueprint. The government must avoid a routine approach and instead provide:
Support in ship sale and purchase procedures.
Enhancement of Indian Lines’ share in general cargo transport.
Acquisition of cellular container vessels for efficient general cargo handling.
Civil air transport is a relatively recent addition to India’s transportation sector. Its potential was first shown in 1911 when an aircraft delivered mail from Allahabad to Naini over the Ganga, covering 10 km in a few minutes. Until the Second World War, however, aviation remained marginal to national transport.
In 1953, the government nationalised air transport by establishing:
Indian Airlines for domestic routes.
Air India for international services.
The two were merged into the National Aviation Co. of India Ltd. (NACIL), later renamed Air India Ltd. in November 2010.
March 1, 1994 marked a turning point when the Air Corporation Act, 1953 was repealed, ending the state monopoly. Key changes included:
Price deregulation for private airlines and cargo operators.
Liberal import rules and route flexibility for aircraft.
100% FDI allowed in greenfield airports via the automatic route.
These reforms spurred private participation and modernization of airport infrastructure.
If current growth persists, civil aviation could drive India’s economic ascent in the next decade, as the Indian economy approaches Chinese scale. This optimism has led to:
New airlines entering the market.
Fleet expansions and renewals by existing carriers.
India now has the second-fastest air traffic growth globally, just behind China, with strong gains in:
Passenger numbers
Aircraft movements
Cargo carriage
Despite only 1% share of total national passenger traffic, air transport offers major advantages in speed and time savings over long distances. However, only 6.67% of India’s middle class travels by air, versus 35% in China. Still, growing interest from foreign investors and strong fundamentals are driving growth.
The industry faces structural challenges from a changing economic climate. These include:
Consolidation and rationalisation trends.
Weeding out of unsustainable players.
Strengthening of firms with solid business models.
This evolution is expected to benefit the industry, making it more competitive and efficient.
The aviation sector in India has traditionally operated as a captive industry managed by bureaucratic systems. Several persistent problems stem from:
Over-protection of the industry.
Multiple layers of interference in operations and regulation.
Lack of cohesive, long-term planning.
Frequent changes in decision-making personnel.
Inexperienced appointees in this high-tech and complex field.
These systemic issues have hindered the sustainable growth of Indian civil aviation.
Given these challenges, accelerating the deregulation process is essential. Reforms should target the following obstacles currently restricting growth:
Foreign ownership limits in private airlines, which still require official clearance.
Mandatory non-trunk route obligations for all private airline operators, reducing flexibility and profitability.
Comprehensive deregulation could unlock the true potential of India’s aviation sector by fostering innovation, competition, and investment.