Debating India

Infrastructure: theirs and ours

Friday 22 December 2006, by PATNAIK*Ila

The challenge of infrastructure-building becomes more arduous in rural areas. This is because rural populations are more scattered than those in urban areas and low incomes prevent households from investing in electrical appliances, vehicles and telephones, thus keeping demand low.

In India, the approach of having private vendors enforcing user charges in a regulated environment has worked very well for some kinds of infrastructure problems. But this approach might not work too well for rural infrastructure, where demand is low and projects often not financially viable. Alternatively, infrastructure can be built by the government. This requires a vigilant citizenry, a watchful press and good governance, or else public expenditures end up in the pockets of contractors and their political friends. In rural areas, however, governance is notoriously weak and public works have the least chance of success.

Thus, rural infrastructure remains a genuine puzzle. Neither the private vendor plus user charges approach, nor the public sector construction approach is easily applied here. The India Rural Infrastructure Report, put together by the National Council of Applied Economic Research and published by Sage, is one of the first comprehensive documents to highlight the specific problems that India faces in the area of rural infrastructure. It emphasises that more of the old approach will not work. It suggests a new policy framework for improving rural infrastructure.

The current picture in Indian villages is bleak and the disparity with urban India is stark. Nine-tenth of rural households do not have telephones. Half do not have domestic power connections, and even those with connections are without power because of outages for upto 13 hours a day on an average and about 17 hours a day during the monsoons. Half the people do not have access to all-weather roads. Almost eighty per cent households do not have toilets. Even those who have access to drinking water, have no assurance about its quality.

While rural infrastructure is genuinely difficult to build, the problems have been exacerbated by poor policies. In the case of rural telephony, for instance, the government has focused on provision of fixed-line telephones through BSNL. There are two distortionary financial levies: payments into the Universal Service Obligation (USO) fund, and the Access Deficit Charge, through which the private sector subsidises BSNL. It is possible to get much more bang for the buck by improving policies. The cost of rolling out mobile telephony is lower and this is a better strategy for reaching inaccessible areas. More importantly, instead of public money flowing through BSNL, contracts can be given out through open competitive bidding where private telecom companies can compete with BSNL and help drive down the price of rural telephony.

There is an increasing sense that the best role for the government in aiding rural telephony is to support lowering of prices by the removal of USO and ADC payments, and to have an on-budget programme for building towers where space is rented out to telecom vendors for the purpose of establishing base stations. Such an approach would do far more for rural telephony than the existing policy framework.

Rural roads present an even more daunting challenge. While 13 states have village connectivity of 85 per cent or more, an equally high number, 14 states, have less than 60 per cent connectivity. In Karnataka less than 0.5 per cent of the villages were unconnected in 1997, while in Madhya Pradesh (including Chhattisgarh) 72 per cent of villages were unconnected. In 2005, 270,000 villages were yet to be connected by all-weather roads. As an NCAER survey shows, rural households are increasingly using motorised transport such as mopeds, scooters and motorcycles to commute over short distances. The demand for motorised transport is increasing faster than the demand for bicycles. The growth of the rural market owing to the rise of a middle class and the growth of motorised transport has outpaced the growth of rural roads.

Studies in the health sector show that placing a Primary Health Centre in a village does nothing for improving health outcomes, after controlling for other village characteristics. However, road connectivity has a powerful effect on income and hence on rural health.

While the report points out the various issues that policy makers should focus on, its recommendations should be discussed and debated before each state and district arrives at its own suitable solution. User charges and private capital can be effective sources of revenue and investment in urban roads but they may not prove as effective in rural areas. Decentralisation of road construction and maintenance without adequate monitoring may result in corruption and poor quality roads. User charges may be a useful way to address the issue of water availability and wastage but a regulatory framework for water quality may be equally important. The problems are enormous but we no longer have the option of ignoring them.

The writer is senior fellow, National Institute of Public Finance and Policy, New Delhi

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