Everyone knows that India’s infrastructure is run down and broken. Virtually nothing exists, or if it exists, it is of a quality that’s below the worst in the world. Broken roads, missing footpaths, absence of drains, intermittent electricity and water supply, dysfunctional public transport. Everything about it is also riddled with deep layers of corruption.
Even a so-called communist country like China has managed to build superb infrastructure. Its government sector companies are now managing infrastructure for the developed world since the quality of infrastructure they provide is often higher than the best private sector companies of the world.
Role of government
Before we look into the causes of India’s dismal performance we should ask: what is the role of government in infrastructure.
It is true that some governments, like Singapore and China, directly supply infrastructure, but at a fundamental level, infrastructure provision is not a primary function of government. It is a second order function, at best – after all the first order functions have been performed well.
It is true that there is generally a greater role for government in infrastructure provision than in many other activities but this role is largely to support or regulate the market, not necessarily to directly create or manage it.
Many elements of infrastructure can be readily provided by people themselves. When we look at the history of infrastructure development we find that much of it began as a private exercise, without any government being involved.
Roads are a classic example. People created roads on their own by walking from one place to another. Even elephants create paths in jungles by walking over a particular path. Such paths then become more travelled and finally there is a need to make these more durable when heavier objects have to move along them, such as bullock carts. That’s when new costs are involved and people often voluntarily contribute money to improve these paths. It is only at a much later stage that government is asked to take over such roads.
It is the same with infrastructure services like public transport. What often happens is bus services start in response to a profit-making opportunity. But thereafter, due to a change in circumstances, the incumbent operator often becomes uncompetitive. The incumbent then applies political pressure for the government to buy up that service. This is how many bus companies have ended up in the hands of government.
There is no fundamental reason why telecom, airports, ports, water, electricity, even trams and railways, should be in government hands. There are good examples of continuing private management of even water (UK) and railways (Japan). Even irrigation can be privately managed in many ways.
People assume that the government must build roads, generate and distribute electricity, build dams and irrigation pipes. But none of this is obvious.
We should review the historical development of infrastructure in each case and identify opportunities for markets to deliver infrastructure on their own. Often all this requires is the allocation of the rights to charge for the use of infrastructure.
This is relatively easy in the case of goods like water electricity and piped gas supply. It is also relatively easy where a road can be completely separated from other roads and therefore a toll can be charged. Modern technology makes it possible to allocate such rights and to charge users individually, even for roads that are not separated from other roads.
The machine of governance
Regardless, we know that there will generally be some role for government in infrastructure. Often, at a minimum, it involves the regulation of infrastructure.
But like any other area of delivery of government services, there are two key aspects involved: (a) the machine of governance that will deliver the policy and (b) the policy itself. In India’s case both these aspects are very problematic.
The foundation of good governance is a system of accountability. India’s governance system has no accountability at any level, therefore it cannot deliver anything, even the simplest road, drain, or footpath.
The overall governance system dramatically affects the delivery capacity of the government with regards to infrastructure. In the case of India infrastructure is deeply corrupted. The entire system from top to bottom is corrupt. Ministers are the biggest criminals, and take a huge share of all infrastructure projects and spending. If an honest officer (very rare) prevents them from getting their “cut”, they simply remove that officer from his post.
As a result, all infrastructure produced by government is three times more costly than what the private sector would produce for comparable quality. And much of it is never built, merely exists on paper. Thousands of schools in rural areas in India have been built and paid for but exist only in paper.
Now, fixing the governance system is a big ask. I’ve written about it on many occasions. So for the rest of this article I will assume that India has managed to fix the incentives and the political system and the bureaucratic system. This is a heroic assumption since we know that none of this is going to happen in India without a complete change in the political parties that govern India.
But let’s assume the miracle has happened and India has managed to get honest ministers and competent bureaucrats.
I want to add that although China is communist and many of its policies are inimical to progress, it has built a strong model of accountability in its governance system. That is why it is able to organize high quality infrastructure but India can’t. China is trying to copy the Singapore model, which is clearly one of the best in the world.
The policy: privatize wherever possible
Even if one manages to get honest politicians and bureaucrats, infrastructure is not something that comes naturally to us. It is an area where bad policy is found even in the best of countries.
Many of these bad policies arise from bad assumptions about what markets can do for themselves. There is also a political reluctance to charge people for use of infrastructure (such as for toll roads), which makes things difficult to achieve.
At least some of the infrastructure can be fully privatised with appropriate regulatory regimes. Of course, there is a cost involved in privatising the use of infrastructure. Privatisation should only go up to the point where it is efficient for society to do so. In some cases it may be cheaper for an effective government company to directly manage some critical infrastructure. But that can’t happen in the Indian system today because of its totally unaccountable governance system.
Demand management is an essential part of good infrastructure policy, such as in transport. But only a few countries have been brave enough to implement a congestion charge, largely due to fear of political backlash. But it is the job of politicians to show the people the right solutions and explain to them the benefits they will get from these solutions.
I believe Swarna Bharat Party is the only party that can provide India with competent infrastructure and governance. India has no hope whatsoever of achieving high quality infrastructure without the policies that SBP has outlined in its manifesto.