Lack of Policy Uniformity in the Modi Government’s Investment Model for the Infrastructure Sector

Lack of Policy Uniformity in the Modi Government’s Investment Model for the Infrastructure Sector

By Manohar Manoj

Prioritising government investment in the infrastructure sector is described as the hallmark and USP of the Modi government. Over the past decade, the government has received considerable praise for ramping up investment in two core infrastructure sectors: railways and highways. In this period, nearly ₹3 lakh crore has been invested in railways, while annual investment in highway construction has ranged between ₹2–3 lakh crore. As a result, an average of 35–40 km of national highways is being constructed daily across the country, up from just 15 km a decade ago. Consequently, the total length of national highways has increased from 90,000 km to 1.46 lakh km.
To begin with railway investment, it is not being undertaken based on any long-term policy or future economic viability. The government is investing several times more in railways in an unpredictable manner, without assessing what returns it will generate in the future. On the contrary, instead of opening up basic railway construction work to the private sector, the government has maintained a monopolistic position and is undertaking the entire investment itself without any clear investment policy. There is a strong apprehension that, after fully upgrading the entire railway infrastructure, the government may hand it over to the private sector on a platter in the future—as has already begun with the operations of certain specific trains being handed over to private players.
However, the private sector should have been invited to take up railway track length—keeping in mind the requirements of the next 50–100 years—on Build-Operate-Lease-Transfer (BOLT) or revenue-sharing models. Instead, the government is handing over the operation of modern trains and certain segment activities to private hands, but is not inviting them for large-scale investment in railway infrastructure construction on the lines of the telecom sector. In such a scenario, the question arises: if the private sector is to be invited into railways in the future, why not invite private companies right now—under a new railway investment policy modelled on telecom infrastructure—to participate in everything from railway tracks to all basic activities?

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  Over the past decade, the Modi government’s investment of around ₹2.5–3 lakh crore in railways has led to nearly 100% electrification of the network, doubling of railway lines, and large-scale construction, repair, and modernisation of most stations. Yet, railway fares have seen only marginal increases over the past two decades. The Railway Ministry states on tickets that it recovers only 57% of the total rail transport cost from passengers. Indian Railways operates its passenger services through cross-subsidisation from its freight earnings. The question is: why has the Modi government never come out with any policy statement or document on railway economic operations, long-term demand, and the burden of current investment?
  In recent years, railway infrastructure has improved significantly due to government investment. Many stations now resemble five-star hotels, but no one knows what the future revenue model will be. On one hand, the Modi government follows a policy of freeing itself from the operational burden of profitable public sector enterprises and placing them on the disinvestment list; on the other, it keeps Indian Railways—the country’s largest commercial enterprise—outside this approach. The result is that there is virtually no availability of tickets according to demand in long-distance train services. Almost every train has a long waiting list.
  It would be better if the government increased fares annually by 2–3% in line with wholesale inflation, and adopted a revenue-maximisation approach for railways rather than the punitive methods from the British era. Currently, passenger services generate only about ₹90,000 crore in revenue for railways. This could be raised to match the ₹1.5 lakh crore revenue from freight services through modest fare hikes, rationalising fares for various suburban train services, eliminating corruption by TTEs and touts, and creating more revenue outlets for railways.
  On the other hand, highways are also being constructed rapidly across the country. The model here is different: both private and government players operate, but whether the government or the private sector builds the road, toll (user charge) will be collected. However, the toll collected by contractors far exceeds the expenditure incurred by the government’s public sector undertaking, the National Highways Authority of India (NHAI), on highway construction and maintenance. Road Transport Minister Nitin Gadkari has clearly stated that unless sufficient toll is collected, future road construction in the country cannot be financed. But the question remains: while user charges in the form of toll may be levied, their determination must be reasonable. A car travelling 1,000 km on highways has to pay around ₹2,000–3,000 in toll charges. Earlier, after paying a one-time fee at the time of vehicle purchase, users were exempt forever.
  However, the use of basic road facilities has become quite expensive. Instead of establishing a regulatory authority like in the telecom or power sectors, the government is levying arbitrary charges. Moreover, the construction quality of these highways—whether due to corruption or pressure to complete work quickly—is collapsing and frequently making headlines, which is an extremely serious issue. It violates the concepts of “no tolerance to corruption” and “value for public money.” The quality of numerous massive construction projects across the country has been exposed, and India has been mocked both domestically and internationally.
  It is worth noting that the traditional investment model for various infrastructure sectors assumed that the government should invest entirely in basic sectors, as the private sector could not make quick investments and earn immediate profits. Hence, for a long time, governments spent fully on roads, railways, power, and telecommunications. However, after the New Economic Policy of 1991, when the role of the private sector was enhanced and it began to be seen as a partner alongside the public sector, the private sector was granted investment and production licences in several infrastructure items such as power, petroleum exploration and marketing, and coal mining, under various formulated models. In this process, public-private partnership under a regulatory authority played a major role in the expansion of telecommunications. A similar situation was visible in power generation and the established system for grid purchase. In many of these basic sectors, the investment formula that took shape after the new economic policy moved away from the earlier concept of the public sector bearing full responsibility, and instead created a framework to bring in the private sector as well. As a result, the burden on the government in infrastructure development reduced, and adequate investment became possible with the arrival of private investment. In this process, participation and partnership of both private and public sectors were established in the country’s infrastructure, with various formulas devised for their revenue and profit sharing.
  If we look at it, different revenue models should be crafted for different basic services so that all objectives can be achieved, similar to the telecom model. For instance, private investment in every basic sector should be attracted in such a way that the investment burden on the government is minimised. There should be healthy competition between private and public sectors. Consumers should have access to services at concessional and competitive rates. If every person in the country can have a mobile phone at the lowest rates in the world, then a similar situation can be created for affordable electricity in every household, on-demand rail berths for every passenger at reasonable rates, and toll charges at fair prices. For this, it is essential to determine a partnership model between private and public sectors under a regulatory authority, according to the needs of each basic sector. In railways, there is a need to determine the economic viability of government investment, while on highways, toll rates need to be made affordable. On the touchstone of reasonableness, we must determine the investment model, revenue model, and consumer usage charge model for the construction quality and services of all basic sectors. The Modi government’s actions resemble running an investment vehicle without brakes, without establishing a regulatory authority.

• The author is the convener of Bharat Parivartan Abhiyan