The long and winding road

Now that five years of the UPA are over, what has it achieved? In terms of growth, we’re now worse off, though it’s unfair to blame the government for this since both the rise and fall were very largely driven by global developments, as well as our own business cycle. In terms of deficits, of course, it’s a sad story that can’t be blamed on global developments since the current cycle of fiscal profligacy began before global crisis started affecting us. But this blog is about infrastructure, what are the lasting achievements of the UPA on this front?

On the face of it, many. Two spanking new airports ready at Bangalore and Hyderabad, the ones at Delhi and Mumbai are in the middle of getting completed; we have four Ultra Mega Power Projects which have been bid out and which, over a period of time, will get commissioned; several intra-city metro projects along the lines of the one in Delhi are on their way to getting completed; the list goes on.

It can be no one’s case that infrastructure development is an easy task – recall that none of the so-called ‘fast-track’ power projects talked of in the early 1990s came to fruition despite the combined will of the central government behind them. So each one of the projects just cited is an important breakthrough. The problem, however, is that the UPA has not been able to put in place a mechanism that puts development on the automatic track.

Sorry, I need to amend that. The UPA put in place a mechanism for ensuring infrastructure development was on the automatic track, but it was equally quick to rescind it. So, to ensure that, for instance, only the best developers in the world developed infrastructure in India, and to ensure top-notch firms were not eliminated at the technical evaluation stage (which very often happens), it came up with an evaluation sheet which was an objective one – how many airports have you built before, what traffic did these airports have, how many highways have you built etc. (In the Delhi and Mumbai airports, you’d recall, the technical evaluation was rigged so that just two firms qualified – this new method was meant to stop this from continuing.) So what happened to this? In the case of the highways projects, for instance, it was junked. And, thanks to a minister of whom the less said the better, the great progress made during the NDA years has ground to a halt.

Similarly, when the Railways wanted to build some locomotive and coach factories on its own, it took a long battle to get the Railways to agree to get this done through the PPP route – 74 per cent private, and 26 per cent Railways. Initially, the contracts were completely loaded in favour of the private firms; they were then changed, and loaded in favour of the Railways! With great difficulty, and over a year, the contracts were rescued and brought back to being neutral. The bids were called for and, after a stormy Cabinet meeting, the Railways decided to reject the bid and go ahead and make the engines on its own!

A spanking new Electricity Act was brought into place. This promised a telecom-type revolution. Users like you and I would be allowed to buy electricity from whoever we wanted. So, while the electric wires coming into our houses may have been owned by Reliance Infrastructure, we could ask the Tatas to supply us power – so so many suppliers competing for our custom, as in telecom, prices were supposed to fall. What was the result? In the six years or so that the Act has been in place, there hasn’t been even one instance of a consumer being able to buy power from a third party using what’s called ‘open access’. If you’re a power plant with surplus capacity, and want to sell that power to a third party outside the state, the government doesn’t give you permission to do so – to prevent the electricity from going waste, you then sell the electricity to the government utility in the state, and that utility then sells it outside the state, and pockets the profit. Today, peak power shortages are higher than they’ve been in the past.

As for the airports and the new ports that have been privatised, there’s a new problem. They’re very high cost. In the four new airports, new user charges of around Rs 300 or so for domestic flights is what’s charged and it’s around Rs 1,200 for international flights. In the Nhava Sheva port, a study found users were being charged 80 per cent more! In short, the way the contracts were drawn up and implemented, we’ve got into a very high-cost structure which, in the long run, will kill the industry itself. In the airports, like Delhi, thousands of crore of land has been gifted away almost free to the developer – the Delhi airport has been a long-standing scandal and, if you like, I can give you the urls of some pieces I’ve written on it.

As for the regulators who’re supposed to look after the consumers’ interests, most of these bodies have been captured by bureaucrats and, with perhaps no exception, they’ve, by and large, worked to further the interests of private firms whom the government of the day is in favour of. The corruption is a separate story and, if you’re interested, I’d encourage you to pick up a copy of the latest annual BS Books issue – a chapter called Regulatory Roulette has many of the details.

In a nutshell, as the UPA departs, there’s little to show for the work it has done in the infrastructure space. Which is a real pity since this is one area where the Prime Minister’s closest aide Montek Singh Ahluwalia was personally involved in.