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INNOVATING WITH INFRASTUCTURE. “DEMAND SIDE” INSIGHTS FROM FIRM RESPONSES. SUMILA GULYANI NOVEMBER 2006. Key variables in infrastructure reform. Restructure. Invest. Institutions & governance. Demand. Supply. Technology. Development practitioners’ view. - PowerPoint PPT Presentation
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SUMILA GULYANINOVEMBER 2006
INNOVATING WITH INFRASTUCTURE
“DEMAND SIDE” INSIGHTS FROM FIRM RESPONSES
2
Key variables in infrastructure reform
Institutions & governance
Demand
Technology
Invest
Restructure
Supply
3
Development practitioners’ view
“infrastructure raises productivity …” India Infrastructure Report
“the adequacy of infrastructure helps determine one country’s success and another’s failures . . . (and) good infrastructure raises productivity and lowers production costs”
World Bank
Paradox?: Industrial successes without infrastructure
And little support in the literature
4
Research Questions & Methodology
How does inadequate infrastructure affect the costs and competitiveness of firms?
How do firms respond?
Indian Auto Industry (31 firms)Major Case Study: Maruti
5
Power Problems: Firm-level Perspective
Chronic shortage (Cause: Demand >> Supply)– Hard to get a connection– Frequent power cuts
Power quality problem (Cause: D>S, poor infrastr)– Voltage fluctuations– Frequency fluctuations
Impacts: loss of production; machines shut down, material losses, product quality variations
Solution: Self generate
6
Maruti’s innovative power solution
Idle capacity
Polluting fuels
High Cost
Critique against self-generation
High plant load factor: 70%
Use gas- a clean fuel
Low-cost & hi-quality US$0.08/unit
Maruti Case
7
Maruti’s Power Sharing Arrangements
35,00030,00025,00020,00015,00010,000
5,0000
90-9194-95
95-9696-97
97-98
(GT-1) 93-9492-93
91-92(GT-2)
(GT-3)
HSEBSuppliersMaruti-own
MWH
8
Transmission and Distribution– Dedicated underground 11 kv cables– Dedicated 66 kv transmission line
Billings and Collections– 100% Collection
Tariffs Ensure Cost Recovery– Supplier firms ($ 0.09) cross-subsidize HSEB
($0.04)
Maruti’s Mini-Electric Utility
9
Disruptions in supplier production affect assembly operations
Time & material losses at supplier create costs for assembler
Variations in quality are problematic The “inventories solution” is expensive
How important is the supply chain?
Why? Supply-chain effects
10
Cost structure & the supply-chain
78.3%61.7% 76.2%
67.3% 76.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Maruti
Hindus
tan
A-Leya
ndTelc
o
Hero-H
onda
% o
f Tot
al E
xpen
ditu
re Other expensesDepreciationFinancial ExpensesFrieght,Forwarding & pkgingStores & SparesMaterials & ComponentsWages,Salaries,benefitsPower & fuel
11
CONCLUSIONS
12
Conclusions Adverse impacts of poor infrastructure:
– production and quality suffer at the plant – cascade through industrial supply-chains– external diseconomies are more debilitating
Firms respond: Some devise innovative solutions Ability to respond has increased
– Technological revolution – Institutional innovations– Response=f (technology, impact)
+management/vision
But, still, cannot solve the problem entirelyCrucial to understand demand
13
The Framework: Power sharingUnderstanding Demand for InfrastructureSupply-side -Scale economies (-)
-Tech vendors (+)-New/special contracts (+)
Response
Demand for public infra
Self-generation with sharing
Impact
With lean productionexternal diseconomies
Direct & External costs & benefits
14
Expands the options for users & govt
GENERATION TRANSMISSION DISTRIBUTION USERSSUPPLY DEMAND
15
Practical Implications Need for Govt action persists Roles:
– Traditional: Investor, Planner and Regulator– Non-traditional: enabler, deal-maker, partner
Govt can and should:– leverage user interest and investments– Work with a broader set of possible solutions
Industrial targeting: alternatives– New Integrated Industrial Parks (Mohan report,
1996) – Vs. Focus on existing industrial districts – Franchises for “infrastructure districts”