In India, Inflation Is a Rutted Road

Old roads and ports drive up costs. So do unreliable power plants

Truck driver Sujan Singh should be delivering cars to Mumbai from Maruti Suzuki India’s plant near New Delhi. Instead, he’s sitting at a cafe alongside one of India’s busiest highways. “I’ll start again in the evening and travel through the night, as you face huge congestion during the daytime,” he says, enjoying the warmth of a burning pile of trash. “Most of the highways are just single lanes, and the roads are so uneven and bad that it causes accidents.”

India needs to upgrade its 4.2 million kilometers (2.6 million miles) of roads, close the gap between the power its utilities sell and what its manufacturers need, and ease congestion at ports. Its failure to do so is hobbling the central bank’s efforts to beat inflation. Even after the bank raised interest rates by a record 375 basis points in 1½ years, wholesale prices have risen more than 9 percent on an annual basis for 12 straight months. Although food prices have dropped some, the bank says supply bottlenecks that also push up costs must still be tackled.

“India has allowed a large number of cars without creating enough roads; a large number of industries without enough power to run them,” says Sunil Sikka, president of Havells India, the nation’s second-largest electrical components maker by value. “It’s like trying to wear shoes without socks—very, very irritating and difficult.” Sikka says Havells must pay higher packaging costs to protect lamps and switchgears from bumpy roads, where average speeds are 20 kilometers per hour (12 mph). JC Bamford, whose excavators sell in 150 countries, needs at least nine days to move equipment 2,900 kilometers from New Delhi to Trivandrum in southern India, says Vipin Sondhi, the local unit’s chief executive officer. In the U.S., that would take four days.

“All companies where there is movement of goods and services and distribution are getting hit,” says Jagannadham Thunuguntla, chief strategist at SMC Global Securities in New Delhi. Maruti Suzuki, Godrej Consumer Products, and Hero MotoCorp, maker of almost half the motorcycles sold in India, are among hundreds of manufacturers that now produce their own electricity. “From the beginning we took the decision to use our own power, as the power supplied by the government wasn’t reliable,” says R.C. Bhargava, chairman of Maruti Suzuki, a unit of Japan’s Suzuki Motor.

Plans to lay more highways and generate more electricity often go off track. In the year through March 2011, the National Highways Authority of India built 1,780 kilometers of roads, about 30 percent less than its target. In the same period the nation added 9,585 megawatts of power, 34 percent less than forecast. Manoj Singh, an adviser at the nation’s Planning Commission in New Delhi, cites problems in land acquisition, environmental clearances, and in some cases poor performance by contractors. “It would be unrealistic to think of matching the U.S. or China in terms of infrastructure. It would take many decades,” he says.

India aims to build 7,300 kilometers of new roads this fiscal year. That’s little consolation for truck driver Singh. “I’ve been driving for 20 years, and every year the traffic gets worse,” he says.


    The bottom line: India faces another year of high manufacturing costs as it tries to upgrade 2.6 million miles of roads.

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