Discussant Comments on Infrastructure in the 12 th Plan by Jessica Seddon and N. K. Singh

1. Discussant Comments onInfrastructure in the 12th Planby Jessica Seddon and N. K. Singh Nirvikar Singh Department of Economics, University of California, Santa Cruz SCID Annual India Conference Stanford University September 27-28, 2012

2. The Issue • “India’s infrastructure remains poor in spite of the annual reiteration of its importance, the promises to devote more public funds, and the efforts to attract private investment in infrastructure.” • “The country’s ability to produce the national infrastructure networks that it will need … is a function of the political, administrative, and market processes governing public and private investment. These processes appear to be broken in India.”

3. The 12th Plan Answer • “The Twelfth Plan Approach paper … calls for professionalization of the civil service, total quality management, IT systems, social mobilization, strengthening of local institutions, coordination between institutions, institutionalization of project management capabilities, and infrastructure debt funds and other measures to support private investment. What comes first?”

4. The Seddon-Singh Answer • 23 recommendations, some general, some sector-specific • Framework: • Institutional change to improve incentives for performance, reduce distortions and create positive domino effects • “Our recommendations for national policies to unblock India’s infrastructure impasse fall into four broad categories: tie your hands, learn from states, focus accountability, and be realistic even if it means incremental change.”

5. The Seddon-Singh Answer (contd.) • “Policymakers must also pay close attention to repairing the political culture, particularly levels of trust between the State and civil society, in order to create a context that allows for continued experiments in public-private collaboration for development.”

6. Sector-Specific Answers • Telecoms • Level the playing field vis-à-vis BSNL for USO • Rethink spectrum allocation goals and processes • Strengthen TRAI • Power • Rationalize pricing • Improve regulatory quality and reduce political interference • Fix the fuel supply chain • Transport • Coordination, decentralization • Strengthening regulation • Corporatization

7. Common, Familiar Themes • Rent-seeking and political interference • Money • Power • Failure to access know-how • States’ best practices • Private sector • Foreign • No accountability for failure to perform

8. What Else Do We Know? • Ram Singh (2009) • Causes of delays and cost overruns • Econometric analysis of 894 infrastructure projects across 17 sectors • “… deficient project planning, use of inappropriate procurement contracts and faulty contract management are some of the leading … causes.” • Poor coordination across multiple government agencies, especially for approvals • Richer states are not better on average than poorer ones

9. McKinsey Report: Building India • There are shortfalls in awarding projects as per plan • Project execution is inefficient • There are shortfalls in funding • The tendering phase suffers from shortcomings, affecting viability and delaying implementation

10. Problems in the Tendering Phase • Quality of planning and engineering design is poor • Tendering unviable PPP projects is common • Contracts in use are inappropriate • Pre-tendering approval process is centralized and slow

11. Problems in the Construction Phase • Land acquisition delays are common • Dispute resolution processes are ineffective • Performance management is weak • Availability of skilled and semi-skilled manpower is insufficient

12. Weakness in Provider Skills across the Value Chain • Weak risk management skills • Below-par design and engineering skills • Lack of best-in-class procurement practices • Low prevalence of lean construction principles

14. Additional Thoughts • What’s special about infrastructure? • Network externalities • Public good aspects • Size and complexity of projects • Nature of associated risks • Some of the issues that get highlighted are generic problems with the business environment in India • They are just felt more intensely in infrastructure

15. Additional Thoughts (contd.) • Many of the problems with infrastructure reflect more widespread failures of governance, but there is a more natural role for government than in building and running hotels or shops – so privatization is not a straightforward solution • Not easy to improve the quality of governance, or to break the rent-seeking equilibrium, which also stunts development of private sector capabilities • McKinsey urges private providers to improve their skills

16. What Comes First, Second,…? • Maybe too hard to reform the civil service or repair the political culture, so: • First, systematically identify, recognize and admit the problems (e.g., Ram Singh, McKinsey) • Second, build project design and management capabilities • Third, improve procurement and contracting capabilities • Fourth, start creating barriers to political interference • Fifth, financial deepening for risk pooling and risk management

17. Conclusion • This is an excellent, ambitious paper • Begins to give us a framework for thinking about how to break the infrastructure impasse • Some suggestions • Tie in with other quantitative and qualitative analyses • Draw on other countries’ successful experiences if possible • Keep sharpening the prioritization of needed changes