Playing the fiddle and crying wolf
Why has India failed to overhaul, modernise and transform its infrastructure sector? The answer is threefold – poor policy making, poor regulatory oversight,
Issue Date - 30/03/2013
7. The Chief Minister of Delhi, Sheila Dixit, was featured in newspapers on February 25, 2013, for a strange reason. She was quoted as apparently saying those residents of Delhi who complain of high power tariffs should consume only what they can afford. When the distribution of power was privatised in Delhi in 2002, there was hope that private firms will ensure that the then figure if 55% T&D loss – an euphemism for theft – would be drastically reduced. That in turn would actually lead to lower tariffs for consumers in Delhi. Of course nothing of that sort has happened and power shortages as well as high tariffs have become a political hot potato for the Sheila Dixit government. But Delhi is only symptomatic of the entire country. According to the Central Electricity Authority, India is looking at a power deficit of more than 10% in the current year. Power cuts range from about one hour a week in states like Gujarat to about 30 hours a week in states like Tamil Nadu. Mind you, both are industrialised states. The less said about the so-called poor states, the better. The reason given by the authority is critical shortages of coal and gas – two things we have already mentioned above.
8. In 2012, Union Commerce Minister Anand Sharma admitted to Parliament that only 154 out of 587 Special Economic Zones approved under a 2005 policy were operational. In contrast to the promise of creating millions of jobs and creating China style manufacturing jobs, the actual number of jobs created was just about 800,000. The minister stated that SEZs accounted for about a quarter of exports from India. What he didn’t add is that most of these export earnings came from software firms that had shifted base to SEZs to available tax exemptions. Even a child knows that even a fraction of the Chinese miracle has not been repeated by Indian SEZs, with most of them becoming speculative real estate deals.
9. Things were not looking so bad once upon a time. When Atal Bihari Vajpayee was the Prime Minister of India, he implemented a cess on sale of petroleum products to exclusively finance the expansion and modernisation of India’s highways, including the prestigious Golden Quadrilateral project. He gave the responsibility to implementing the scheme to Major General B. C. Khanduri. Even critics of BJP and the then NDA government reluctantly admit that the highway modernisation project was one of the genuine success stories delivered by the Vajpayee government. Around the time the NDA lost power in 2004, India was adding about 18 kilometers of spanning new highways every day. Today, that figure has dropped to a measly 2 or 3 kilometers at best.
Clearly there is something seriously wrong with the infrastructure sector on India. One top level industry analyst recently told me why he thought that the recent policy to allow FDI in the retail sector is more of a joke than a revolutionary step. He simply laughed at the idea that global chains like Wal-Mart will invest huge amounts and transform India agriculture as well as food processing industries. His logic: Wal-Mart is not going to invest money to build power plants that will allow cold storages to function. Nor will it invest dollars in building roads that will connect the rural hinterland to urban markets. He further said that one of the key reasons for the rate of GDP growth crashing from more than 9% a year to just about 5% a year now is because of India’s appalling and inexcusable failure to overhaul, modernise and transform the infrastructure sector. According to him, this failure is going to haunt India for many many more years to come. That is because infrastructure projects take years to come to fruition and even a dramatically charged up UPA regime cannot do much in the immediate future in terms of concrete results
What actually went wrong? The answer, without beating about the bush, is threefold. The first is poor policy making. The second is poor regulatory oversight. And the third is extreme levels of crony capitalism. Look at how the UPA government adopted policies to allocate spectrum in telecom and coal blocs on the mining sector. The policies were inherently flawed and bound to generate controversy and confusion. The results are there for all to see. Something similar happened with a policy decision by the civil aviation ministry to allow airlines only with at least five years experience of domestic flying to launch global operations. Something worse is happening with the proposed Land Acquisition Bill that will make it a nightmare for investors to acquire land for any infrastructure project. There doesn’t seem to be any hope too of this government paying heed to common sense voices and adopt sensible and transparent policies. The second key reason for this unfolding nightmare is poor regulation. The Delhi Electricity Regulatory Authority is a classic case. One year, the body accuses the private power distribution firms of unethical behaviour and refuses to entertain their demands for a fare hike. The next year, it mysteriously allows an even bigger hike despite widespread protests. The Directorate General of Civil Aviation has similarly failed to look either after the interests of the consumers or behave in a consistent and rational manner. We all know what has been happening and what is happening with the telecom regulator TRAI. Then again, it did appear as if the regulator for the petroleum industry the Directorate General of Hydrocarbons was sleeping even as gas production from the KG basin started falling alarmingly.
But poor policy making and poor regulation are mere manifestations. The real reason is crony capitalism. There have been so many allegations of scams during this regime that it is difficult to keep track of all of them. They seem to come out as regularly as pot boilers starring Akhsay Kumar. But there is one common strand in almost all the allegations of the scams. They are related to the infrastructure. Power, SEZ, telecom, highways, coal blocks, gas fields and civil aviation seem to to be sectors that have been the worst affected by scams. The sad thing is: there seems to be no end to this brazen practice of crony capitalism. The implosion of India’s infrastructure sector will continue.
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