Why have infrastructure reforms failed?

Why have infrastructure reforms failed?
The Hindu

Lack of a strong internal constituency to blame for poor performance; paucity of resources is another major constraint

Industries stand before the Government as supplicants rather than demanders of performance, and are scared to demand accountability, but for a few voices heard occasionally out of exasperation.



IT IS no secret that despite a good growth in overall output the reform initiatives in key infrastructure sectors in India have largely failed. This is especially perplexing considering that the BJP rode to power in Madhya Pradesh, ostensibly on these very issues, with the slogan "Bijilee, Sadak, Pani." Again, when electricity supply quality in Delhi reached intolerable levels, with endemic power cuts, the Government had to privatise, and the people accepted it, though Delhi is the capital of subsidies and its people are accustomed to eating free though bad lunches.

The first lesson, offered by the Delhi electricity privatisation, is that privatisation will be accepted, not when the public sector is a mere financial liability, but when its (non)performance becomes a political liability, affecting the basic necessities of the common man and the affluent alike. In India, while the financial losses of public service firms provide the flash point for privatisation, losing the very constituency, namely the public they serve, provides the fire point. After all, the visible indices of good governance to a common man are the adequate supply at affordable price of basic services such as electricity, water, roads and public transport.

The Mumbai model

S.M. Krishna, former chief minister of Karnataka, wanted to make Bangalore a Singapore, but a more modest question is, "Why is not Bangalore at least like Mumbai?" Mumbai has good roads by and large, fast moving traffic, reasonably good quality electricity supply and tolerable water supply. This is because, without good roads, the huge traffic will come to a standstill. Without good electricity, thousands of lifts in multi-storey buildings will hang between floors causing chaos. The Mumbai suburban trains run to legendary levels of punctuality because people expect it, and without such high performance, there will be chaos. Similarly, at a train reservation counter or a post office, the person behind the counter simply cannot relax, and has to deliver good performance, simply because the people standing in the queue will not tolerate undue slack.

In contrast, electricity supply in Bangalore is around the horrible levels of the erstwhile Delhi Vidyut Board, with frequent interruptions: this, in the IT capital of the country, where the industry cannot tolerate even a minute of interruption. So frequent are the interruptions that the IT industry, while having a foreign visitor, does not revert to the grid supply when it is restored, lest it should fail again and be noticed by the visitor!

Bangalore's woes

Bangalore's roads are receiving national media attention for their utterly poor state. The Bannerughatta Road — serving the Indian Institute of Management, a cluster of IT multinationals, two renowned hospitals (a third one is coming up) and the national park — has been voted the worst road in the country by a media poll. A new road constructed just six months ago, is now full of potholes. Again the question comes up, how is it that in Mumbai they put cement roads that last, whereas in Bangalore they construct roads that last less than a year?

In the case of Bannerughatta Road, most of the big the firms and even the IIM have paid money to the Government to get a good road, and yet no result. So, money is not the problem, but governance is. Between electricity and roads, the complaints of the IT industry about roads are more strident than about electricity supply, because the industry can use captive power but has no such option for roads. Even if you reach Bangalore by your private jet, you still have to negotiate its awful roads!

Historically Bangalore has a poor public transport infrastructure, because it was a city of public sector firms, each with its own transport. The late Prakash Tandon on the board of Hindustan Aeronautics Limited used to wonder if it was an aircraft company or a transport company because of its pervasive fleet of buses and the attendant union problems. The low quality high cost power from the public supplier is not challenged because people are passive. For the vocal IT industry, high cost power is not an issue. Industries stand before the Government as supplicants rather than demanders of performance, and are scared to demand accountability, but for a few voices heard occasionally out of exasperation.

`Demand and you get it'

Thus we come to Lesson No. 2, namely: You will get what you expect. Expect and demand good performance and you will get it. Expect a poor performance and put up with it or cope with it through alternatives, and you will be doomed with the same poor performance throughout. Good performance will be delivered, even by public sector units, when there is no alternative or when the alternative is chaos.

Electricity reforms have been there in India for over ten years. In the U.K., the driving force behind power sector restructuring was the motive to privatise. Since the coal miners had held the country to ransom, Margaret Thatcher's government was firm in its belief that 'business is not the business of government'. In the U.S., the 'price gap' between the States has been the driving force for industry demanding open access to low priced power.

In India, 'resource gap' has been the reason for reform, which is therefore orchestrated by the resource providers or arrangers such as the World Bank. This has meant that there is no internal constituency demanding reform; the unions oppose it, politicians are afraid to privatise electricity leaving the reforms to be carried out by bureaucrats and World Bank officials. The World Bank, like a priest, simply chants the mantras of unbundling, corporatisation, privatisation, having a regulator and removal of cross subsidies while the bureaucrats see in this reform process additional jobs as regulators in their post retirement period.

The end objectives of reform, namely, better quality of supply, adequacy of supply, reduction of losses, viable supply organisations and lower prices to consumers remain a distant dream. Most States including Uttar Pradesh are going through the motions of reform such as unbundling and corporatisation but with no clear mandate for privatisation. As a result there is no improvement and in some cases there is even further deterioration in performance. Lesson No. 3: Any reform, unless it is internally driven and achieves consensus among conflicting stakeholders, is bound to fail.


V. RANGANATHAN

Professor of Economics & Energy, RBI Chair Professor on Infrastructure
Indian Institute of Management, Bangalore