Missing the motivation message

The proposed restructuring of the Accelerated Power Development and Reform Programme (APDRP) is both timely and necessary. We all know that the financial state of distribution utilities is the Achilles? heel of the electricity sector, and this programme had not gone as far as we had hoped to encourage states to reduce theft or invest in limiting technical losses. States have been slow to use the funds available for investment: more than a few states have less than half of the projects sanctioned in 2002 complete. Only a few states have responded to the cash incentives to cut their losses.

The new APDRP programme, with tighter restrictions on funds, and stronger incentives for reform, is expected to be in place this year. One of the best changes to make would be to include more technical outreach to state electricity boards (SEBs) directly to ensure that all are capable of defining and executing projects to take advantage of the grant funds. It is not clear whether it was commitment or capacity that limited states? use of the investment or of the incentive fund, but technical outreach could at least rule out the capacity excuse. This seems like a sensible strategy to deal with a complex issue that has much larger economic consequences. A model for other sectors, since almost all of the items on anybody?s ?to do? list need both central and state policy changes.

We could do better. The ?carrot and stick? approach, used by the APDRP (and countless other inter-governmental incentive programs), is one of the least subtle diplomatic strategies. It assumes states are self-contained organisations, motivated by financial incentives.

This approach contradicts the other stream of public debate about the role of states in reforms; the one that criticises state leaders for engaging in competitive populism, lauds chief ministers as bold reformers, and presents various competitive rankings of states? policy environments. It seems to ignore one of the main arguments in favour of federalism, that subnational governments are closer to their constituents and thus potentially better able to serve their area?s particular preferences.

In short, financial incentive schemes miss an important potential motivation for reforms: the electoral preference of voters. Some governments do respond to financial incentives. All governments, in some form or another, and some more than others, respond to voter pressures. The question, then, becomes, ?What can the central government do to activate voter pressure for states to reform?? The last phrase, ?for reform? is especially important?the subsidies sagas demonstrate that electoral choice and voter pressure is not always helpful. The longer way to ask the question: ?What can the central government do to alter the political catalyse to channel voter pressure toward changes that may have short term transition costs, but will ultimately improve governance, public services or economic outcomes for a most of their constituents??

Some possibilities:

The central government can both support/demand functional transparency. In the case of APDRP, the programme should not only help states gather data from energy audits, but it should encourage states to publish this data online in an easily understandable format. States? subsidy support should also be put online. Including additional points of reference?such as the costs of health clinics, schools, or teachers? salaries? would make this a statement on the costs of continued subsidies for electricity.

The central government can also enable politicians to make credible ?pay for performance? bargains with their citizens. At least some people are willing to pay for high-quality infrastructure: they buy generators and tanked water for far higher prices that a good public system would cost. Why not enable state officials to provide this? In the case of electricity, this could be done by dividing up the 15% unallocated share of power from central plants to reward states that had carried out specific distribution sector reforms. This has been proposed for several years in various contexts.

The central government can support the independent creation of state report cards to enable comparison across states and create pressures for competition in good governance or service quality. These also need to be disseminated widely and contain salient information?number and duration of blackouts, for example ?to be effective. The detailed Icra/Crisil rating of SEBs and state reforms were useful for close watchers, but did not attract widespread popular attention.

Finally, and most importantly, the central government can facilitate inter-state learning of best practices and not just center to state learning. National meetings of chief ministers, of SEB officials, or other specialised policymakers probably accomplish some of the knowledge transfer between state governments, but a more institutionalised, ongoing, online ?solutions and lessons exchange? could accelerate this process. NGOs, international organisations, and large corporations, are already using such knowledge management systems to track both successes and failures. Perhaps the Planning Commission, which has been moving towards positioning itself as a think-tank, could take up the task. The carrot and stick approach should not be abandoned? sometimes states? voters interests are different from national interests and sometimes state governments might need the central government to act like a heavyweight on unpopular issues?but it should not be the only tool. We are missing the motivation if we do not work to activate voter pressures for reform.

?Regular columnist NK Singh and Professor Jessica Wallack of the University of California, San Diego, are collaborating on a book on infrastructure reform on India