Prospects look good for the economy in 2007. International conditions remain supportive, both by way of economic growth and investor confidence. The combination of three years of high petroleum prices have taken the edge off demand and recapitalised productive capacity to an extent that crude prices are unlikely to rise in 2007. The domestic economy is bursting with confidence?despite the occasional political cloudburst and opportunist opposition to industrial development. It is obvious that what can capsize a sustained run of high economic growth in the short-term is paucity of physical infrastructure, and the spread and quality of education in the longer term.
While China?s unabated 30-year innings continues to amaze, it is worth remembering that Japan had a run of 10% annual growth for 18 years between 1955 and 1973, as did South Korea later. In this period, these East Asian countries faced many difficulties: recovering from a devastating war (Japan) to managing internal turmoil within an authoritarian political framework and the labyrinth of fossilised dogma (China).
Mercifully, India does not have to contend with such burdens. She is, however, saddled with a unique challenge: that is, to create physical infrastructure efficiently and make the cost-recovery process work. Like all normal societies, creating such assets and recovering cost was the norm in the decades after India gained Independence. Yet, over the years, the triumph over responsible behaviour of populist platforms designed to harvest sectional votes, combined with increasing corruption and the mendacity of state sector supervisors, had rendered the commercial component of public service provision?electricity and urban drinking water?dysfunctional as a business, while the entirety of the sector, both commercial and non-commercial (roads and so on) became thoroughly inefficient in project execution and maintenance.
India, thus, alone amongst the Asian fraternity of fast-growing nations, has the dubious distinction of a deficit?not just in physical infrastructure, which is a consequence, but a deficit in the fundamental ability to build infrastructure. It never ceases to amaze just how much energy is wasted in search of finance for infrastructure. It unfortunately reflects on how poor the understanding of the problem is. Finance, funds, money?call it what you will, there is no shortage of the stuff, from domestic or overseas resources. What is in short-supply are projects that can actually be executed in the hope of recovering their cost in the way that such businesses do the world over. In non-commercial segments, it is about the lack of supply of appropriate agencies to execute public works projects efficiently.
In areas such as education, building the schools is one thing (though even this is not automatic), but imparting education is quite another. A policy that simply asks for money to be thrown at a problem that is known to be knotty is a cop-out |
It is worth sparing a thought on why the telecommunications sector is so vibrant. The business is demonstrably viable, and so there is no shortage of investors, and thus there is no shortage of telephony. Most readers will remember that it was not always this way. In the power sector, despite some improvements in recent years, just too much electricity is still ?unaccounted for? ? shorthand for being lost in the quicksand of corrupt practices, sheer inefficiency and the absence of either carrots or sticks deployed by the concerned agencies. So much so that while selling power to state-owned distribution companies is not the surefire route to disaster that it was some time back, current conditions still do not generate the requisite confidence that will bring in a rush of investors vying one another to serve electricity to this power-starved nation. The same holds true for urban drinking water. These are normally such low-risk businesses that governments do not have to even think of how to get in investment. Yet, it is our mark of dubious distinction that we have turned the simplest of businesses into a veritable nightmare by exceeding in our own peculiar brand of foolishness. Such is the traction that bad ideas and practices have attained, that moving power sector reform an inch ahead is considered a big deal.
It was quite true that when India gained Independence six decades ago, there was an acute scarcity of investible funds; it remained true for several decades after that. But today, it is fortunately no longer true that we are shackled by inadequate financial resources. The only thing that holds us back is the baggage of old lessons learnt by rote.
Does not this farce play itself out on a daily basis? ?More funds are needed for infrastructure,? cry the concerned; ?use the country?s foreign currency assets?, cry some others. ?Forget the fiscal responsibility act,? cry others still. It is truly amazing that they all overlook the human agency that converts a resource into something else. Funds do not automatically become physical assets — just as there is a difference between a road that leads to nowhere and one that links an isolated region, or between roads and bridges that disappear each monsoon and the ones that do not. Between the textbook and ground reality, there operate interposed human beings, their organisations and foibles.
Our problem is that so many?from economist to columnist to policymaker?fail to see the obvious: that with physical infrastructure, the real resource constraint is that of effective organisations, instruments of execution and appropriate regulatory environments. Not a funds constraint. In areas such as education, building the schools is one thing (though even this is not automatic), but imparting education is quite another. A policy that simply asks for money to be thrown at a problem that is known to be knotty is a cop-out?an excuse for thinking, and just a way to shirk responsibility.