Need for Infrastructure Development and Management

Need for Infrastructure Development and Management

The importance of infrastructure for sustained economic development is well recognized. High transactions costs arising from inadequate and inefficient infrastructure can prevent the economy from realizing its full growth potential, regardless of the progress on other fronts. Physical infrastructure covering transportation, power, and communication, through its backward and forward linkages, facilitates growth; social infrastructure including water supply, sanitation, sewage disposal, education and health, which are in the nature of primary services, has a direct impact on the quality of life. The visible signs of shortfalls in capacity and inefficiencies include increasingly congested roads, power failures, long waiting lists for installation of telephones, and shortages of drinking water illustrate the widening gap between demand and supply of infrastructure, and raise questions concerning the sustainability of economic growth in future.

The efficacy of private sector participation in infrastructure development would be contingent upon the capability to commercialize these projects whereby recovery of investments would be through a system of user charges. There is a potential for public private partnerships (PPPs) to contribute more and to help bridge the infrastructure gap in India. There has been considerable progress in the last ten years in attracting private investment into the infrastructure sectors; first in telecommunications, then in ports and roads, and in individual projects in other sectors. With the current GDP growth of 8 per cent, in which there is contribution of nearly 51 per cent from services, and 16 per cent from manufacturing sector, there is a need for proper alignment of resources. To sustain
this growth, India needs to develop sound infrastructure so that the right input of

a) skilled, qualified, and socially contented labour;

b) visible and reliable supply chains;

c) prompt and accurate information for decision making; and

d) efficient process and updated technology can be given to the operations of manufacturing and services.

The need to provide world class infrastructure that keeps pace with 8 per cent economic growth is clear. City roads are choked with traffic, power cuts are a fact of life and passengers are routinely delayed as booming air travel tests airport capacity. The demand for infrastructural services has increased rapidly after industrial liberalization of the Indian economy. Unfortunately, infrastructural bottlenecks remain the biggest stumbling block of industrial progress in the country. By their very nature, infrastructure projects involve huge initial investments, long gestation periods and high risk. The resulting bottlenecks are beginning to pose serious impediments to enhancing productivity. Urban infrastructure includes water supply and sanitation which are important basic needs for improvement in the quality of life and enhancement of the productive efficiency of citizens. There has been a steady increase in the urban population on account of rapid industrialization, natural growth, and migration from rural areas. This has prompted the working out of alternative ways of meeting the increasing demand for transport given the constraints of land and capital, and the need to control energy consumption, pollution, and accidents. An input –
output model of infrastructure is given below.

Infrastructural development in a country helps to run the operations of any company efficiently and effectively. Since cost is a reality and price is a possibility, and, due to high competition, price is decided by the market forces, the cost control is imperative and within the scope of a company. Lowering costs can be achieved through better managed operations, backed by sophisticated infrastructure. Nowadays, the nature of operations management in India is changing. Customer demands for better services, growing dominance of technology, the view of the individual enterprise as just one component of the total value system, the increase in interconnectedness and globalization of business
and economics, and the widening range of stakeholders to be satisfied are all factors contributing to the substantial operational challenges. There are many issues that the infrastructure or construction industry must take care of. One is correlating the project cost estimates with actual costs incurred. From our experience we have seen that the average cost of a project goes up by 30 per cent compared to the budgeted cost. If the project size is huge, an increase of 30 per cent means an additional burden of several crores of rupees to complete it.

Monitoring and controlling costs of projects is a key concern due to their geographical spread as well as temporary or mobile offices. Centralized purchasing becomes difficult in such situation, resulting in the loss of volume discounts and a higher landing cost of materials. Subsequently, it becomes difficult to check the inventory and account for materials used.

Ideally, inventory levels need to be checked so that the budgeted project cost is constantly and automatically updated. In this way, at any phase of the project, an estimate of the cost, per cost site, can be drawn up and compared to the current cost. The time for project execution is shrinking. Infrastructural projects have high upfront costs and long payback periods; there are real cost savings to be gained by executing projects rapidly – even a small overrun can mean the loss of crores of rupees. These gigantic projects require micro-monitoring of small individual projects across multiple locations, and this is done with the help of operations management. The availability of adequate, efficient and affordable infrastructural facilities both economic and social constitutes the core of development strategy and efforts. In the absence of infrastructure services, enterprises are forced to seek higher cost alternatives which impact profits and production levels adversely. In India, the demand for infrastructural services has increased rapidly since the industrial liberalization of the economy. Unfortunately, infrastructural bottlenecks remain the biggest stumbling block of industrial progress in the country. By their very nature, infrastructure projects involve huge initial investments, long gestation periods, and high risk.

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