Investment failure is showing

The spectacular electricity grid failures in late July 2012 focused global attention on India’s infrastructure woes. On the surface, the grid failure was the result of large-scale unauthorised excess drawal of power by Haryana, UP and other states that had experienced till then, a deficient monsoon. At a deeper level, the excess drawal was unavoidable, given the shortfalls in generation capacity and investments in coal mines, railways and transmission & distribution facilities. At the deepest level, however, the failures laid bare the shortcomings of the Indian political economy.

In virtually all key infrastructure sectors, power, highways, railways, irrigation, urban water supply, sanitation and municipal waste disposal–about the only exceptions being telecom and real estate for the non-poor—failures of investment have seriously constrained growth. In each case, while the proximate causes vary, the deeper failures of the political economy leading to inadequate investment remain the same.

In respect of highways, a deliberately flawed PPP bidding model, for a number of years, led to gridlock in assignment of contracts to developers, the bidding effort being deflected to a different end. In the case of railways, cross-subsidisation of passenger fares by freight has led to loss of freight traffic to roadways and consequent insufficient revenues, and thus to insufficient investments.

Irrigation tariffs throughout the country are way too low for meeting operational & maintenance costs, let alone new investment. In urban infrastructure, political reluctance to recover costs through realistic property taxation or user fees has

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