Commentary/Yazad Darasha

Infrastructure: A word buzzing around in circles

Infrastructure is the latest buzzword. But while it keeps buzzing around our heads, the government appears to be buzzing off to sleep on the subject.

We cannot even blame the current political crisis for the problems of the infrastructure sector. They predate the crisis.

A lot of economic pundits say the whole process of economic restructuring of the Indian economy was undertaken ass-backwards. They are probably right.

We opened up the most inconsequential segments to foreign investment and competition - segments like consumer goods and colas - when we should actually have concentrated on transportation and telecommunications and power.

Finance Secretary Montek Singh Ahluwalia admits infrastructure received low priority but justifies it saying that the balance of payments crisis demanded a crisis response and any inflow of dollars was better than zero inflow.

According to Ahluwalia, we were in no position to stall the investment coming into the so-called inconsequential sectors, just to ensure it came into infrastructure.

That's a point that can be debated until H D Deve Gowda's cows come home.

The fact remains that the infrastructure sector has received low priority, not on the foreign investors' wish list of industries, but on the government's policy-making processes.

And that is the real reason that, even after five years of liberalisation, not a single mega power project has yet gone on stream. Why not one kilometre of highway has been built by the private sector. Why our basic telecommunications services are still completely disconnected from the realities of growing demand. Why passengers are still being offloaded from domestic flights because of undercapacity. And on and on.

Transportation: Let's look at the roads first. In the last 10 years, the share of goods being transported by road, as compared to rail, has risen from 20 per cent to a phenomenal 80 per cent. Forget the rail network. The way it has been losing ground to road transport, Indian Railways will become a purely passenger service by the turn of the century. And without the cargo, it will go deeper and deeper into the red.

So do we not need to develop the road infrastructure? In the last 10 years, the network of national highways has increased 30 per cent. But how does one describe a national highway? I would describe it as a smooth, four-lane artery that bypasses as many small towns as possible, so that goods transport is faced with as few hurdles as possible. On all three counts, over 50 per cent of the roads we are pleased to call national highways would not qualify.

Which means that even of the 30 per cent increase in the kilometerage laid in the past 10 years, about 75 per cent would not qualify as national highways.

Most of our highways are pitted like the surface of the Moon, taking a heavy toll of the vehicles using them. This ensures that the cost of maintaining goods carriers on Indian roads is extremely high. No prizes for guessing who ultimately shells out for the extra cost.

Toll roads are the norm in most developed countries. The Indian government has no specific policy for toll roads built by the private sector. One assumes the reason is that allowing the marginal increase in the cost of goods due to toll paid on a privately built and maintained road would be an 'anti-poor' thing to do.

Actually I would have thought that the more toll roads are allowed, the more the competition and the better the services and surfaces provided to the users. But who can fathom the government's mind?

Perhaps the other reason a coherent policy on this has not emerged is that the private sector would build only in high-traffic segments, leaving the rest of the country unlinked and undeveloped. A very simple way to get around this problem is to give fiscal incentives for setting up industry in underdeveloped areas (such incentives are already in place), and then making it mandatory for the company setting up the industry to develop the road infrastructure as well. This way, it is entirely in the government's hands where it wants to extend road services.

Of course, these would again be toll roads, but the cost of building them can be partially recovered by making their building a joint venture with the National Highways Authority of India. If each partner puts in an equal amount, the company gains by having access to its industrial site at a fraction of the cost, and the NHAI develops the hinterland at, again, a fraction of the cost. No toll need be charged.

It is again a lack of a coherent and logical policy on the domestic aviation scene that has ensured undercapacity on trunk sectors, while aircraft fly empty in other sectors. Of course, the one underlying motivation behind allowing and, at the same time, throttling private airlines seems to be the protection of Indian Airlines, never mind the extra burden to the taxpayer.

A very simple method of ensuring that the low-traffic areas - like the Northeast - are serviced without major losses to all existing airlines is to auction such sectors on a monopoly basis to one single airline per sector. This ensures that the sector is serviced, and the airline does not lose money as it has been given a monopoly. I would love to hear the government's reasons for why the scheme cannot be worked.

The same way, our crumbling airport infrastructure will continue to crumble as the Airports Authority of India seems to have neither the funds nor the expertise to build them. Right? (A case in point: Bombay's international airport, where the air traffic control tower is so close to one of the two runways that every takeoff and landing is a heart-stopping moment for both the pilots and the air traffic controllers!).

But we will insist on knee-jerk and totally illogical responses to successful foreign airports authorities' offers to build airports in India.

We tell them that only companies with absolutely no connection airports and/or airlines will be allowed to invest in the Indian aviation sector!

This is so absurd, it is beyond comment.

Power: In five years, all the megawattage promised by the entry of transnational power giants has resulted in zero watts being actually generated so far.

Can a country that has projected a power need of a further 3000-plus MW by the turn of the century afford such slow progress?

And why is progress slow? Because every project is suffering from the now world-famous Enron effect.

Succinctly, the Enron effect slows down the development of a power project because (a) any change in government puts a project in jeopardy, why no one knows; (b) policy regarding the pricing of the power generated and the returns that a project should expect is made in the stumbling-along style that simply responds to events rather than being worked out in advance, by consensus; and (c) the environmental and human issues are blown out of proportion by governments that cannot afford not to pamper vote banks steeped in a legacy of Satyagraha.

If a comprehensive policy had been worked out before the sector was thrown open to foreign and domestic private investment, at least a couple of hundred megawatts would have gone online by now.

Conclusion: Frankly the single thread that runs right through this sad tale is the glaring lack of any kind of policy pronouncements for any segment of the infrastructure sector. This holds good for the telecommunications segment as well, where mobile phones are allowed to operate in a milieu that barely supports basic telephony services.

Even the cellular phone operators are given conflicting policy messages when the Department of Telecommunications decides to charge fixed phone users a higher tariff every time they call cellular phones (effectively ensuring that there are minimal calls from fixed to cellular phones, putting the mobile operators' entire investment in jeopardy).

Even basic issues like the treatment of the cellular licence as a commodity that can be pledged in lieu of term finance was not sorted out in advance. This put a lot of expansion investment plans in jeopardy while the policy was thrashed out in a hurry.

Deepak Parekh, the recently appointed chairman of the recently set up Infrastructure Development Finance Company, has an unenviable record in the development of the housing finance sector.

However, he had the advantage of reasonably clearly enunciated policies in that housing finance segment to work with.

In infrastructure finance, he will have to start from a scratch. He will need to set up specific committees that will look into each and every aspect of infrastructure investment and work out policies in advance that will take care of any controversy that may arise.

Of course, all policies would necessarily need to be arrived at by public consensus. Which means a lot of more time wasted. But then, it is better to be transparent than to be perceived as a case-by-suitcase government.

In fact, I would see a person of Parekh's calibre as the only saving grace in a virtually lost situation. Because if he cannot pull India out of its knee-jerk tendencies in infrastructure, we will probably continue to stumble along in the dark, on roads pocked with craters, incommunicado to the rest of humanity.

Tell us what you think of this column