Opinion Look,India in ruins

With 2G described as the mother of all scams,it’s time to take a wider look at the state of our infrastructure. Infrastructure means different things to different people. “Infra” is below or under. Therefore,anything that supports the economic structure or system from below is infrastructure. This may mean physical infrastructure,as well as social overhead capital,though more commonly,it is the former. In 1994,the World Bank’s World Development Report (WDR) focused on infrastructure for development and divided physical or economic infrastructure into three heads — public utilities (power,telecommunications,piped water supply,sanitation,sewerage,solid-waste collection and disposal,piped gas),public works (roads,dams,canals) and other transport (urban transport,railways,ports,waterways,airports). To this,we can explicitly add postal services,radio,television transmission and solid-waste management. We also owe a number to that 1994 WDR. One per cent increase in infrastructure stock increases GDP by 1 per cent. Indian figures are higher. The National Manufacturing Competitiveness Council’s National Strategy for Manufacturing talked about incremental GDP growth of 1.5 per cent,1 per cent from the power sector alone. Some of the finance minister’s speeches have increased this to 2 per cent. That represents opportunity cost of low growth. The most visible signs of infrastructure success are in telecom,associated with the mother of all scams. The most visible signs of infrastructure failure are in electricity. Maternity is certain. Paternity is conjecture. Is that why we are obsessed with success (scam notwithstanding) in telecom and generally ignore the father of failure in other infrastructure sectors? Policy apart,technology drove telecom. Technology doesn’t work the same way for other areas of infrastructure.And infrastructure is bad in most of India. Because of administrative convenience,one often focuses on variations among states. For example,the Twelfth Finance Commission divided states into five categories,segregated according to an infrastructure index. At the upper end,we had Goa,Maharashtra and Punjab. At the lower end,we had Arunachal Pradesh,Manipur,Meghalaya,Jharkhand,Mizoram,Nagaland,Assam,Chhattisgarh,Sikkim,Tripura,Jammu and Kashmir,Bihar and Rajasthan.However,this is more than just states,since there are variations within states,with backward regions within them. Of India’s 600-odd districts,100 are backward by all physical infrastructure criteria. The phrase “inclusive growth” is a misnomer. We really mean inclusive development. Several NSSO reports show how bad it is. For example,there is a recent (November 15) report on housing conditions and amenities,with data for 2008-09. To take one example,18 per cent of rural households had drinking water within premises,latrines and electricity. What is inclusive development? It probably means access to electricity,water (drinking and irrigation) and road transport,together with law and order. If these are ensured,social sector outcomes (schools,primary health centres) will automatically follow. These connectivities were supposed to be ensured through PURA (Provision of Urban Amenities in Rural Areas).This has now been subsumed under Bharat Nirman (water supply,housing,telecom and IT,roads,electrification,irrigation). Is it working? Not convincingly. Every civilisation has realised the importance of infrastructure. The Romans built roads and bridges wherever they went (there were maritime routes too),and eventually introduced a legal system. Why look to the Romans for everything? Sher Shah Suri is a better example. He reformed taxation,organised mail services and police and improved law and order. He built roads (not just the Grand Trunk Road),dug wells,established hospitals and free kitchens,and without the benefit of a National Advisory Council. Interestingly,he was a governor of Bihar then. Why did it take us so many years after Independence to realise roads were important? But surely,everything has changed now. There is a Committee on Infrastructure under the PM’s chairmanship,constituted in August 2004. To hammer home the point,there is a Cabinet Committee on Infrastructure,also chaired by the PM,and constituted in July 2009. There is a Public Private Partnership Appraisal Committee,between the Department of Economic Affairs and the Planning Commission. There is viability gap funding and an Inter-Ministerial Empowered Committee for this. The India Infrastructure Finance Company Limited has been created. There are model concession agreements for PPP projects,model bidding agreements,guidelines and manuals. With all this concentrated attention,infrastructure should have taken off.The mid-term appraisal of the Eleventh Plan brings us down to earth. Between the Tenth and Eleventh Plans,infrastructure investment increased from 5 per cent of GDP to 7.55 per cent. However,public investment in electricity has flagged and so have roads,despite a target of 20 km per day and the Pradhan Mantri Gram Sadak Yojana. Railways have underperformed,including on PPP. Airports vary. Except for some private ones,seaports have been underachievers. Water supply,irrigation and other elements of Bharat Nirman are underperformers. The Ministry of Statistics and Programme Implementation tracks Central sector projects above a threshold (separately Rs 1,000 crore,Rs 100 crore and Rs 20 crore). Of 600-odd projects,more than 200 have had cost overruns. More than 300 have had time overruns. The mother of all scams cost us Rs 1,76,645 crore. However,the father of failure through cost overruns alone cost us Rs 1,16,724 crore. The latter is no trifling sum. The Planning Commission blames it on state governments — law and order,land acquisition,rehabilitation and settlement,obtaining environmental clearances. Asaf-ud-Daula built Bara Imambara in Lucknow as an employment guarantee measure in 1783. He had an asset at the end,though its productive nature might be disputed. NREGA doesn’t provide for creation of productive assets (not even for water harvesting),isn’t integrated with other elements of Bharat Nirman and doesn’t provide for maintenance. Thus,the problem is also with the Central template,including for Centrally sponsored and Central sector schemes.There are two McKinsey reports (Financing and Investing in Infrastructure,Accelerating Infrastructure Projects) worth flagging. The quality of planning and engineering design is poor. It is common to tender unviable PPP projects. Inappropriate contracts are used. The pre-tendering approval process is centralised and slow. Dispute resolution processes are ineffective. Performance management is weak. There is insufficient availability of skilled and semi-skilled manpower. There are weak risk management skills. Design and engineering skills are below par. Procurement practices are not the best. Lean construction practices are not used. At one time,infrastructure was defined in terms of economies of scale and externalities,both seemingly public good arguments,since there are market failures. With unbundling opportunities and possibilities of de-linking public provisioning from public financing,that’s no longer true. However,whether it is public,PPP or private,beyond land and environment,the administrative system seems incapable of delivering. If you feel depressed at this,read a book authored by Pat Choate and Susan Walter in 1981. This was titled America in Ruins and argued the US economy would collapse because of inadequate infra-structure. It may well have been translated into Chinese.

The writer is a Delhi-based economist express@expressindia.com