Day 3: Country Session – India-Central

Chaired by Montek Singh Ahluwalia (former Deputy Chairman, Planning Commission of India), the session focused on infrastructure provision.

Oliver Vanden Eynde (Paris School of Economics) presented his research on connecting rural India. The project involves construction of an integrated, geocoded dataset of all infrastructure projects in India, with a focus on those under ‘Bharat Nirman’ – a flagship infrastructure programme of the government. It seeks to analyse two key issues: (i) factors determining successful programme completion, particularly in conflict areas, and (ii) impact of rural infrastructure provision on local socio-economic and political outcomes. It finds evidence of particular implementation difficulties in conflict areas, with varying patterns across different infrastructure types. Lack of coordination across projects is also visible.

Ashish Vachhani (Ministry of Finance) gave an overview of the new government’s priorities for infrastructure and related regulatory issues. Over 2012-2017, the aim is to build world-class infrastructure, involving investment of US$1 trillion. This will have important spinoffs for manufacturing and employment growth. Infrastructure has been traditionally provided by the government due to natural monopolies and public interest, but this has led to operational inefficiency, quality concerns and inadequate investment. The opening up of telecoms in 1991 marked a change. There is now consensus that government regulation plays an important role and there is optimism regarding policy agreement for regulation in railways, highways and real estate.

Rathin Roy (National Institute of Public Finance and Policy) said that a binding constraint on growth in India is the ramshackle infrastructure. Addressing this requires money; there are three layers of challenges: (i) poor productivity of investment in India; (ii) declining government contribution in infrastructure financing, implying greater reliance on commercial banks. This strategy is difficult to sustain and hence, there is a need to bring in foreign investment. There are constraints in terms of a capricious, ill-suited regulatory framework and bias of the financial system against long-term finance for emerging economies; (iii) savings from developing countries are increasingly being invested in the developed world.

Nuno Gil (University of Manchester) highlighted the complexities of mega infrastructure projects, which involve vast networks of public and private actors. There are delays, cost overruns and evolution of the initial scope and targets. This leads to slippages in performance expectations and it is no different in India. Some additional challenges in India include premature announcement of hard targets, centralised governance, resource scarcity, tension between lender conditions and evolving nature of mega projects, and a lack of trust. Projects end up being successful for some actors, leaving some others disappointed. There is a need for a more inclusive goal to unify parties, decentralised governance structures and flexible institutions.

By Nalini Gulati, Country Economist, IGC India-Central