Partha Mukhopadhyay	|   Print |
05.19.2008	|   PDF |
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This wrong-headed approach exists even in relatively successful sectors like telecom. Radio spectrum in India is linked to the license and is priced on the basis of the circle, a geographical area usually contiguous with a state. Instead, if the spectrum was de-linked from the license and defined and priced over much smaller geographical areas, such as districts or blocks, the fact would emerge that spectrum is in abundance in most of India and therefore almost costless, except for a few small geographical areas, in and around large metropolises. This would permit high prices – to provide incentives to economize spectrum use – to be limited to such areas and de-linking would enable trade of spectrum between operators. This, however, again runs the risk that the government’s revenues would fall, even though it reduces prices and increases telecom penetration across India.

In rural telecom, mobile operators submit minimum subsidy bids for space on common infrastructure towers. Many of these bids, too, have been negative. This, coupled with a 5 percent universal service levy on all calls has led to a surplus of Rs. 10,000 crore ($2.5 bn.) in the Universal Service Obligation (USO) Fund (See chapter 9 of the Economic Survey 2007-08. There have been recent demands to reduce the USO levy. After long using the telecom fund to subsidize the government owned operator by restricting rural telecom subsidies to wireline technologies, the government recently allowed wireless technology in this area. The government’s view of mobile phones as a luxury long outlived their adoption by low-income users.).

Despite this embarrassing excess, the government’s plans for improving rural digital access rely on a user fee model for 100,000 e-citizen service centers rather than use the Fund to expand broadband access, reduce user fee and thus hasten the adoption of digital media.

Thus, across different infrastructure sectors, the government is focused more on user fees to get commercial revenue than improving service.

Neither are the contracts themselves well designed. Technical specifications are often incomplete due to inadequate project preparation, leading to disputes and claims. The contracts include non-compete clauses that restrict additional infrastructure and inappropriate bid parameters, e.g., minimum capital grant bids that leave the government with little leverage and limit flexible responses to changes in circumstances (in situations where the concessionaire has little control over traffic, one option is to use Least Present Value of Revenue bids). Such non-compete clauses are forcing the closure of existing airports in Bangalore and Hyderabad, even though traffic has outgrown expectations and the new airports have poor connectivity.

There is little formal regulation in infrastructure, apart from electricity (where minimum tariff bidding has been used for Ultra Mega Power Projects) and telecom. The legislation for the airport regulator is still pending, even though the concessions have become operational. Nor is there a regulator for sectors like highways and water, where an institutional approach might be needed, given India's extensive PPP approach. The Tariff Authority for Major Ports (TAMP) is hamstrung, with a mandate limited to tariff fixation. DPW, which, after acquiring P&O Ports, now has seven facilities along the sub-continental coastline from Karachi to Vishakapatnam, has faced little regulatory oversight.

The government has, thus, failed in its second function too, that of developing regulatory and administrative capacity to manage its partnership with the private sector.

But it is not too late. To reorient India’s failed infrastructure policy, the government will have to reduce emphasis on user fee revenues and focus on providing cost-effective service to users. It must realize that infrastructure is not where you raise revenue; that is a function for taxes. Infrastructure is where you spend those taxes, which then generates more revenue through increased economic growth. For this, it will have to substantially alter its Model Concession Agreements (MCA) and foster a pro-competitive regulatory regime to balance its current overt concern for the profits of concessionaire. Unfortunately, it appears unlikely to do so, since it shows no signs of even realizing it has a problem.

 

 

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Partha Mukhopadhyay is a senior research fellow of the Centre for Policy Research, New Delhi.