Nov 12, 2008 12:50 pm


It was with great dismay that I read that India Reins In Ambitious Building Plans this morning. I resent the term ambitious. My residency in India has long convinced me that when it comes to infrastructure, road and electricity, the Indian government is not ambitious enough. I am even more annoyed at the failure of the WSJ reporters to note one of the major reasons for India's need to rein in it's building plans though it was staring them in the face. Just look at the picture accompanying the article.

Interest rates on project financing have soared, banks are reluctant to lend, and investors are sitting on their cash. But the Indian government can't afford to compensate with a huge infrastructure-spending plan like China's $586 billion stimulus package unveiled on Sunday. . . .

As many as half of the country's planned highway-improvement projects, valued at more than $6 billion, could be delayed as much as two years, says M. Murali, director general of the National Highway Builders Federation, an industry group. That puts about 3,700 miles of much-needed highway improvements at risk. . . .

India's infrastructure deficit is greater than most countries'. After five years of average economic expansion close to 9%, its national networks of highways and power plants are overwhelmed, choking growth as consumers and corporations deal with daily traffic jams and blackouts.

Building in India is expensive and inefficient because it is designed as a rural employment scheme. Moreover, the consequences of that scheme undermine elite support for it. Let me, or more precisely, Swaminathan S Anklesaria Aiyar, explain:

Huge sums have been spent on employment programmes for three decades, which were also supposed to create durable rural assets.

This has not happened for a simple reason: you cannot create good infrastructure through labour-intensive means. The National Rural Employment Guarantee Scheme says that at least 60% of spending must be on labour.

This is possible only in earthworks, such as bunding and check dams. Pucca construction needs at least 70% materials and 30% labour.

Labour-intensive employment schemes have created thousands of mud roads that are destroyed each year by the monsoon. Instead, we need mechanised, capital-intensive approaches to poverty alleviation.

Yes, poverty alleviation. The name of his article is End of poverty? Along with good governance, nothing alleviates poverty more than roads. But, then, the two are probably related. Poverty experts agree that"Infrastructure is the key - Roads, Roads, and more Roads." So here we go again. A government program designed to help the poor is keeping them poor both directly and indirectly.

For it not only increases exponentially the price of road construction while decreasing road quality but it galvanizes elite opposition to such construction especially in India's most economically dynamic urban regions thereby threatening the geese that are laying whatever golden eggs India has.

Why? Because road construction, indeed, all construction, means rural migrants living in miserable conditions. These not only further undermine the quality of Indian urban life but also breed disease. Anything that adds to the number of construction workers needed to complete a project exacerbates the problem.

As Aiyar points out, other Socialist policies such as providing the populace with free water and electricity is just as counter productive as it encourages a wasteful use of scarce resources. The same has been true about keeping gas prices artificially low when crude prices soured.

To sum up: If the credit crunch hurts India more than China, it is partly because of self defeating costly Socialist policies to which Congress and the Indian elite are committed. These policies mean that essential poverty alleviation will be limited to periods of fast global growth when easy credit is searching for investment opportunities.

Who pays the price? The poorest of the poor who live in such regions as Jharkand:

In one of the earliest casualties, the government on Monday postponed the bidding for a 4,000-megawatt power plant in the eastern state of Jharkhand because companies interested in the project, valued at $3 billion to $5 billion, are facing a credit squeeze.

Who does not pay? The rich and even the middle class. They have plenty of servants to attend to their every need. Who needs a washing machine when you can have an army of launderers doing your bidding?!

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