It was amusing to read the travails of Navi Mumbai airport y’day.
The CM of Maharashtra said there has been no proress on the airport and work hasn’t started yet. Moreover, cost to build it have tripled:
There was a lot of media coverage as these two airports were privatised.
Prateek Kuhad (an intern in the Secretariat for Infrastructure, Planning Commission during July-August 2010) writes this superb case study. It was quite a thriller with bidders going in and out of the final list and legal interventions from variety of players. The final outcome was that the bidding process was fairer and did not receive any criticism from stakeholders:
Economist is running a debate on this topic.
This house believes that restricting the growth of cities will improve quality of life.
Adam Roberts , South Asia chief of Economist is the moderator. Chetan Vaidya, director of the National Institute of Urban Affairs in India, opposes the motion. Paul James, director of the Global Cities Institute at RMIT University in Australia supports the motion.
Roberts says cities have increased manifold and quality of life is suffering:
I had sometime back read an article by Vinayak Chatterjee of Feedback Ventures where he said let us define infrastructure first, before we build it.
I came across this document in Committee on Infrastructure’s website which attempts to do the same.
It first summarises definition of infrastructure from six different sources and then concludes what all is to be included:
(i) Electricity (including generation, transmission and distribution) and R&M of power stations,
(ii) Non-Conventional Energy (including wind energy and solar energy),
(iii) Water supply and sanitation (including solid waste management, drainage and sewerage) and street lighting,
(v) Road & bridges,
(vii) Inland waterways,
(ix) Railways (including rolling stock and mass transit system),
(x) Irrigation (including watershed development),
(xii) Oil and gas pipeline networks.
And what all it does not include which other sources include (from the table on last page):
The project is to be done in 3 phases and with each phase linking certain places. In all there are going to be 9 such links:
Phase I (2006 – 2011)
Versova – Andheri – Ghatkopar – 11.07 Km
Colaba – Bandra – Charkop – 38.24 Km
Bandra – Kurla – Mankhurd – 13.37 Km
Total – 62.68 Km
Phase II (2011 – 2016)
Charkop – Dahisar – 7.5 Km
Ghatkopar – Mulund – 12.4 Km
Phase III ( 2016 – 2021)
BKC – Kanjur Marg via Airport – 19.5 Km
Andheri(E) – Dahisar(E) – 18 Km
Hutatma Chowk – Ghatkopar – 21.8 Km
Sewri – Prabhadevi – 3.5 Km
The Total Length is 146.5 km and is estimated to cost around Rs 19,525 Cr .
The first line linking Versova – Andheri – Ghatkopar has been done under a PPP agreement called Mumbai Metro One which is a Joint Venture Company formed by Reliance Energy Limited, a Reliance ADA Group Company, Veolia Transport, France and Mumbai Metropolitan Region Development Authority (MMRDA). ThisBusiness Standard news tells me that this first line might get funded under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to meet the funding gap. It was expected that remaining 8 lines would also be developed under similar lines.
But not anymore. There is another development and now Maharashtra government has set up the Mumbai Metro Rail Corporation (MMRC), a separate body that would develop remaining eight metro rail corridors in Mumbai. And moreover an ET report says state will develop these 8 lines all by itself via MMRC and will not do any PPP. The model has been adopted on lines of Delhi Metro which has made Delhi a much better city.
I hope they stick to this model and there are no changes. It has already been delayed quite a bit. Mumbai needs an alternative mode of public transport badly.
One thing which I could never understand is despite so many problems, why do housing prices in Mumbai continue to rise?Both commercial and residential property prices are extremely expensive and continue to rise exponentially. Every day, you get to hear deals being made at even more higher prices when you hoped the previous deal was perhaps the peak.
A MSA (Metropolitan statistical area)
is categorized as a superstar if it exhibits high demand, defined as whether its sum of price and quantity growth over the prior two decades is above the sample median, and it has a low elasticity of supply, indicated by a high ratio of price growth to quantity growth. We allow the high-demand cutoff to vary over time to account for changes in the aggregate economy. By contrast, the cutoff for having a low elasticity of supply should not vary over time since aggregate changes in demand should not affect the ratio of price growth to unit growth.
I will post my comments and its application to Mumbai later.
It is a well known fact that in Mumbai there is shortage of housing units. It is a city which gets talent across fields- acting, modelling, finance, etc. Even most corporate houses have their headquartyers in Mumbai. A Mumbai post is always looked upon as a plum one and the one to hope for.
So, given the limited supply of land/houses, and with huge number of people coming, the only way is to see the house prices going up. So all this is pretty well known but to say all that via an academic paper is what makes this paper different. As the paper shows, Mumbai has all the elements of a superstar city.
However, the situation between India and US quite different. US can afford to have superstar cities as first income levels are pretty high and second there are alternative cities one can work in. In India, there are just a handful of cities which generate jobs and given the size of the population there is always a lot of pressure on the few cities.
As a result, despite paying such high premiums for a house in Mumbai (and other services), one doesn’t get the quality he should actually be getting. In most places in Mumbai, there is water shortage, poor roads and the list of problems is endless. Despite the problems, people don’t move to other places as you get much better work and opportunities in Mumbai as most companies are based here.
So, it is not really right that Mumbai becomes a superstar city as apart from very rich, loads of low income people also flock to the city. But as house prices are so high, it becomes really difficult to manage a living.
A better solution is to help develop infrastructure in number of cities in the country. This would reduce pressures on Mumbai and help people find employment elsewhere. It is happening as we see cities like Jaipur, Nasik etc coming up but given the population pressures more effort is needed.
Why just focus on Mumbai and make it an international financial centre? This will make it a bigger superstar. Instead develop alternate financial centres in the country and help Mumbai from its existing immense pressures. And after the pressure is reduced, MIFC can be moved ahead. As so far Mumbai is not just a financial centre but does a wide variety of activities. Someday someone will talk about making it an International film centre like Hollywood. How will so many people be absorbed int he city? Those who believe the infrastructure problems in Mumbai can be solved and requires a political will more than anything else, don’t understand the magnitude of the problem.
As Ed Glaesar said, economics of cities approach says people should get more choices. So that should be the approach in India. Otherwise, we will see more and more migration to places like Mumbai and problems of plenty.
And it is not as if the other cities can’t develop. In western UP, every city had some speciality handicraft and number of industries were run based on that art. However, with globalisation and China, industrial activity has slowed in these centres. So, it is not as if Mumbai, Delhi etc alone have been doing some industrial activity, there are other centres as well provided we understand their importance.
This is something even Bob Shiller advocates.
I just finished this paper from him titled ‘The Economics Approach to Cities’ and was quite impressed. The usual urban policy emphasises place over people but economics looks at it the other way round. This means say you are building a road, the urban policy would look at how it would help city transport, but economists would look at whether the road helps give them more choices. At the end, urban policy focus would also lead to better choices for people but the focus is not on people. Whereas economists would first look at whether the welfare of the individuals is increased or not.
I haven’t read at all on urban economics but his paper is an excellent primer on the same. He discusses the various models which explain the mobility decisions of people and firms. I liked this expression which explains what helps people choose various locations:
Income + Amenities – Housing Costs – Transportation Costs
He builds his around this expression. Read the entire paper to understand the approach.
MIFC looks like a report which is place based. The first question is if Mumbai becomes an IFC what extra choices would people have? Would it mean better housing conditions? Would it mean people have more and better transportation choices other than local trains?
The report does have a chapter on urbanisation but is it enough? The chapter talks about new ideas needed to reform Mumbai’s infrastructure but there are just a few suggestions. The focus seems to be on how Mumbai’s strategic location and if we don’t get our act together other cities (like Dubai, Shanghai etc) would gain.
I think the report would have found more takers if the focus would have been on urbanisation reforms and how that can enable Mumbai become an IFC rather than the other way round. There are just too many problems in Mumbai and only a person living there can appreciate them.
I understand that because these reforms would take time and the MIFC would loose the race. But that is reality. One simply can’t shrug it. Efforts need to be made to make Mumbai a better city first (giving people ample choices) and IFC can follow.
One of the ideas behind MIFC is to draw talent towards Mumbai. I just have one thought. Suppose someone does come from say New York on great expectations. If the company doesn’t have suitable accommodation and he/she has to search for one and travel in local trains (or even takes a car), I am sure they will catch the next flight back home. Coming to Mumbai and staying at five star hotels and travelling to Nariman Point is a lot different than making Mumbai a home. And that is reality.
Reading the comments over Ratan Tata’s much awaited People’s car has made me wonder over the infrastructure issues in India. (Read in favour views here and here. And against view here) For the uninitiated the car is going to cost just Rs one lakh (about $ 2,500 in today’s currency) and will be the cheapest car in the world. Hence we are seeing a lot of commentary over the subject. The car would be unveiled in Autoexpo 2008, an automobile exhibition in New Delhi on Jan 10, 2008.
India is facing really tough problems like these:
Infrastructure takes time to develop and because of little urgency shown earlier we have a huge deficit at hands. On the other hand, the things which help human beings utilise infrastructure like cars, motorcycles, airplanes etc have expanded big time leading to big management problems for authorities.
I am all for the People’s car but it is going to be a big-big concern for already jammed roads. And the jams are not just in large cities but more and worese in small towns. Reason? Easy financing schemes (that is what the adverisers call it and we now know we should be careful) have made it easier for people to afford cars, motorcycles. As roads haven’t changed, we have jams all over.
Infact, the problem has become so bad at some places that one has to be a town expert (knowing all roads, sub-roads) in order to reach his work or home. The traffic has become so huge that a minor disturbance in a main highway leads to chaos like the National Highway 2 got disrupted at Agra and as a result the traffic from Kanpur to Delhi was disrupted. The jam ran upto almost 2-5 kms.
So, what do you do? Do you stop Tata from making cars? Do you stop ICICI from giving auto finance? Clearly both are not the right choices. People’s car would make car available to many, ICICI auto finance provides debt and using the equity one can buy the motor cycle/car/truck.
But then the issues with infrastructure are also a reality and one cannot just ignore it. The roads etc would take time to build and in many cases the traffic actually is more than the capacity of the new road. Hence we would have the policy dilemma for some time to come.
I just got this update from Foreign Policy listing the world’s 5 worst airports. As the link was just opening, I was actually wondering whether we have any of India’s airports in the list?
I was not disappointed as Delhi’s international airport (Indira Gandhi International Airport) features in the list. I cannot comment on the authenticity of the list but still to be in worst five is quite a thing. I keep hearing about the problems on airports and flights from colleagues, news channels etc. but never thought it to be so bad.
Both Delhi and Mumbai airports are partly privatized and Delhi airport is being revamped by a consortium led by GMR, a Hyderabad based infrastructure company. I hope we see some major improvements in years to come.
There are some nice papers/case studies on infrastructure related issues on the Committee of Infrastructure website. Scroll down on the website and in lower middle section there are 3 case studies:
They look good. I have seen the Noida-Toll bridge study sometime back. Nice way to understand the infrastructure puzzle in the country.
I have mentioned about this report many times in my blog. The newspapers continue to make a mention of the aspects of the report. Despite so many discussions in public domain, the report could not be found anywhere ( I make a note of the same here and here. I tried various govt. websites but could not locate the report. This was quite irritating. I could see in my Blog Stats, many people had come to the blog hoping to get a link to the report.
Finally, I found the report. The report is put on a website (PPPIndia) floated by Infrastructure Division, Dept. of Eco Affairs, under Ministry of Finance (FinMin), India. On FinMin website, there is a seperate link for the Infra division but there is no mention of the PPPIndia website.
I had visited the PPPIndia website earlier and found the committee was formed by the above division. After visiting the website after a longtime I found the report.
I think Finance Ministry’s website should have atleast provided a link to the report. The report is pretty important and Finance Minister P.Chidambaram has mentioned of it in his Budget Speech this year.
It would have been much easier to locate the report. I am not sure, how many knew the report is out in public domain. Even on the PPPIndia website it is not mentioned anywhere on the homepage and once has to go to a link named Policy & Procedures to find the report. When there is link called financing shouldn’t it have been there as well?
Anyways, go through the report now, as it should have some new ideas on financing the huge infrastructure deficit. Let me go through it and see if I can comment on the same.
The central idea is to channelise the household savings in building India’s infrastructure. As of now mutual funds only invest in listed companies involved in infrastructure and related services. The committee recommends ways in which mutual funds can invest in unlisted companies involved in infra and also suggests various measures to make them popular among households and individuals.
I have still not read the report fully, so cannot comment. However, it looks pretty interesting as it has some international case-studies as well.
For me, it is more interesting as I had mentioned this as one of the suggestions to finance India’s infrastructure in my internship report I had done some time back.
I noticed this policy paper on regulation sometime in August 2006 (when it was released on planning commission website). On first glance, it did not look very good and hence ignored it.
However, a friend of mine asked me for this paper sometime back and I just went through the paper once again and found it to be really good. It discusses concepts and approach to regulation in a very simple and elegant manner.
(Addendum: People can write their comments/ suggestions/ criticisms on this paper till 31 Aug., 2007. Details are here. This is a welcome move and is a big development in public policy. Most of these documents are nowadays available to general public for comments.)
First what is regulation? The paper defines it really well:
Regulation may be broadly understood as an effort by the state ‘to address social risk, market failure or equity concerns through rule-based direction of social and individual action.’
Note: every word is important in the definition.
Economic regulation is seen to be that part of regulation which seeks to achieve the effective functioning of competitive markets and where such markets are absent, to mimic competitive market outcomes to the extent possible. It also identifies and addresses subsidies and cross-subsidies in the pricing of infrastructure services.
However, governments have a broader role for regulation:
States generally use economic regulation in a broader context to achieve a range of non-market objectives which include ensuring universal and equitable access, consumer protection and maintaining safety and health standards.
The paper applies the basic regulation concepts to infrastructure sectors. Before discussing the basics it lists the status of regulation in each of the infrastructure sectors in India.
What is special are the observations on the nature of regulation in each of the sectors. In most, there is no regulatory authority. Wherever there is, there is no accountability and is mostly run by respective ministries.
So what are the core principles of regulation design?
1. Seperation of Power: means the constitutional powers and functions are divided among the three branches of government: legislature, executive and the judiciary.
The paper says, rightly so, whenever we try and combine the two or all three functions in any institution, the institutions fails. The paper says:
In the case of regulatory institutions, this problem is aggravated as a single institution makes rules of law, administers them, and finally adjudicates disputes which may arise. This multi-dimensional character of regulation raises complex problems of compliance with the separation of powers principle. The separation of judicial power from executive and delegated legislative power has been litigated repeatedly in the case of the securities markets regulator, the telecom regulator and most recently the competition authority.
Needless to say, but with India this seperation is the basic cause why nothing happens.
Inter-institutional bargaining is essential to secure liberty in a plural democracy where different interest groups have varied levels of access and control over the diverse institutional apparatus of the state. So if the liberty of citizens is at stake then the separation of powers must be ingrained in regulatory institution design. Moreover, this is a constitutional imperative.
2. Democratic Accountability: How to ensure both- independence of regulator and make it accountable as well. Three ways,
make regulatory bodies answerable to legislative (i.e. ministry),
make former answerable to public (this is possible by adopting processes and systems whereby interested citizens or groups of citizens may seek and acquire information, make representations and be accorded full process and participation rights),
3. Federal Principle: As the subjects of economic regulation are often divided between Union and State competencies, the regulatory structure should reflect this distribution.
The paper sumamrises very precisely the nature of regulation in US, UK, Australia and Sri Lanka.
Then it presents a case of what should be done to build a proper regulatory structure for infrastructure. It categorises various infrastructure sectors nicely:
Each of the infrastructure sectors can be broadly divided into carriage and content segments. Content normally refers to electricity, gas, data or voice. On the other hand, carriage refers to transmission lines, networks, exchanges, airports, ports, highways and other fixed assets.
While carriage is typically regarded as a natural monopoly, the content is eminently amenable to competition. In order to enable competition in the content segment, the carriage should be subjected to non-discriminatory open access under close regulatory oversight including determination of tariffs. Where technology or market structure enables adequate competition in carriage, its regulation could remain light handed. These aspects would have to be clearly addressed in the overarching approach to regulation.
And then it applies the principles of regulation design(discussed above) to build an institutional structure for regulation in infrastructure sector. .
An excellent initiative I must say, to explain basics of regulation. What it lacks is a reference list. I do not understand why our policy makers do not provide references to the various topics addressed in the papers. It helps a lot as firstly it builds credibility and secondly, provides the readers a nice list of papers to read. It could have also done some empirical analysis on the subject.
Anyways, a must read paper.
Infrastructure is often cited as one of the most important drivers of growth. A lot of empirical and field work has been done on infrastructure. What has been the summary of so much work?
It has been put up here in this paper titled ‘Infrastructure:A survey of recent and upcoming issues’ by Antonio Estache, a infrastructure sector specialist at World Bank. The findings are:
Benchmarking is as important as making investments in new/existing projects.
Infrastructure is still very important for economic growth.
As the requirements are huge, It is optimal to raise finances via Public-Private Partnerships for better efficiency. However, most of the onus would still lie on government as some projects may not get private finance. So taxpayers have a huge role to play.
Just delivering infrastructure alone is not enough. It should be delivered in an equitable manner. The author says the tools for equitable distribution are there but are not used.
The research on poverty shows that if there is a political will to address the infrastructure needs of the poor in the short to medium run and if the country can’t generate the tax revenue to finance well targeted direct subsidies, well targeted inter-user, inter-usage or inter-regional cross-subsidies can deliver.
The research on corruption shows that there is no simple institutional solution to reduce its impact in the sector. And this is where most research would focus as corrpution is a big hindrance in the growth of infrastructure.
It is a small paper and covers a wide amount of literature. It has some surprising facts:
One would assume that regulation would lead to more private capital coming into infrastructure and better infrastructure services. But on Page 3, the author shows that many countries that have hardly any regulation in various sectors have attracted private capital. Private Capital sees many more factors like exchange rate risks, political risks etc and regulation alone in not enough.
The poor in rich countries have better access to infrastructure than even rich in poor countries.
The author could have made the writing a bit more simpler and could have talked a bit more on the financing aspects of infrastructure.
Anyways a nice summary on what works and what doesn’t in infrastructure.