India Infrastructure Report 2002 - Governance Issues for Commercialisation

Abstract

IIR 2002 focuses on one of the most fundamental building blocks of a reform agenda, namely, governance frameworks for commercialization. It was in December 2000 that we first mooted the subject of governance for this issue of the IIR. Subsequent developments, such as the Enron saga, the Orissa power sector reforms, delays in the introduction of the Convergence Bill, and the CNG vehicle programme in Delhi, against the backdrop of further deteriorating infrastructure services, all played a role in forcefully proving the point we had been trying to make all along – good infrastructure needs good governance. Governance should encompass the creation, protection and enforcement of certain basic rights such as rights to land, clean air, information, and to earn a livelihood. Our approach to these rights defines the framework in which our societies operate and the extent to which we can tolerate inequities and unbalanced growth of opportunities. Thus, it has implications both for welfare considerations within a country as well as at the international level. The inability to solve the problems of dispossessed peoples around the world lies at the root of international terrorism. The right to good governance in terms of policies to promote ‘public good’ arises precisely from these foundations. We ignore these fundamental issues at our own peril. What we are witnessing in India is the failure of the government to re-invent itself to meet the changing realities of our times. It was amply evident the world over that an omnipresent government attempting to do everything from maintaining law and order to providing goods and services to people, is not feasible. The business of the government is to provide good governance at least cost. This cost is the yardstick of success. The citizen comes first in any governance framework. In India, we saw the government provide services, but this came with enormous wastage of resources, deteriorating service quality, an inability to invest in improvements and safety standards, high and rising subsidies, large and unfounded pension liabilities for employees of the system, massive cost and time overruns of crucial projects, and, above all, an inability to reform encrusted institutional mechanisms that oversee this juggernaut. Many of these symptoms are illustrated in government owned and operated infrastructure services in the past such as railways, airlines, hotel and tourism services, road building and maintenance, hospitals, and education. Clearly we need a new paradigm that will gradually dismantle what we have built since independence and replace it with an enabling environment which encourages private participation. The answer to many of our problems lies in public–private partnerships that use available resources effectively. Defining these partnerships in a manner which can be operationalized, is the challenge for the coming decade. IDFC is working on this paradigm, using UK’s Private Financing Initiative, which has enormous implications for India: privatize where possible (where commercialization possibilities exist and users of services are in a position to cover the full cost of its provision); and where this is not possible and where the government retains its accountability, to tax payers for service provision (such as education, health services, national savings, and defence), use private financing and management of services with governments paying the final bill and thereby reaping huge efficiency gains. There are many possibilities that can bridge the transition from where we are to where we wish to go. It is not the choice of means that poses a problem, as the clarity in determining the ends and setting-up objectives to be attained. This can only be done through good governance mechanisms. If one does not know to which port one is sailing, no wind is favourable. The challenge for India is to decide in which direction we wish to head. This report fulfils a gap in our understanding of governance issues for successful commercialization of infrastructure services.

Keywords: India, infrastructure, economic development, law, policy, regulation, public policy, utilities, transportation, telecom, urban services, energy, government

JEL Classification: O2, O5, H2, H4, H3, I3, L1, L5, L8, L9