Reimagining India: Unlocking the Potential of Asia’s Next Superpower (32 page)

India’s power sector provides a painful illustration of that cocktail’s hangover. My firm, the Infrastructure Development Finance Company (IDFC), was set up by the government to channel private funds into infrastructure and is now a listed company with ownership dispersed across a broad range of private shareholders. IDFC has played a leading role in providing capital to meet the skyrocketing demand for electricity by financing private sector projects. Over the past five years, we’ve invested $5.5 billion just in energy infrastructure and helped raise another $10 billion from other private sector investors.

IDFC played an important part in the development of India’s private power sector, in which nearly half of total capacity was added in the last five years. Unfortunately, many of these new plants will not operate at optimal capacity because Coal India, a government-owned monopoly, cannot deliver the fuel it has promised, blaming onerous environmental regulations and protests from civil society activists. The higher price of imported coal would have to be passed along to consumers, but state electricity boards are prevented by their political masters from raising electricity rates and thus upsetting voters. The result is gridlock.

the way ahead

Skill constraints and the increasingly fragmented nature of coalition and federal politics have impaired government execution and decision-making capabilities. Our judicial system is overburdened and inefficient. Two decades after reforms began to lift the stifling controls of the old license raj, India still sits at 182 out of 185 countries in the World Bank’s ranking of ease of obtaining construction permits. A reimagined
India with an infrastructure befitting a modern, globalized nation requires addressing three primary challenges.

A modern regulatory system.
When the public sector builds and maintains infrastructure, regulatory oversight can be minimal, since disputes are adjudicated within the government. India’s rapid growth of private sector involvement found governmental bodies unprepared. This has made the conflicts between public and private sectors, which would occur in any country, even more acrimonious and intractable. Finding the right balance between the public interest and that of service providers is an art, not a science. It requires arbiters to be empowered, independent, and objective, and to have deep sectoral expertise in and knowledge of public policy, law, business, and finance. Building a cadre of qualified regulators requires that the government pay reasonable salaries to attract and retain them, and it must also foster the development of the academic disciplines to provide the required training.

The government must also bolster the technical capacity and speed of our judicial system. One possible solution is the creation of specialist courts devoted solely to handling these often contentious regulatory issues.

Transparency.
Inefficient administration and outright corruption combine to form a central, poisonous ingredient in India’s infrastruggle cocktail. The most effective antidote to these ills is transparency. As an important first step, the Right to Information Act of 2005 set out the public’s right to access government information and has provided a huge impetus to openness.

The next legislative step will be passage of the proposed Right of Citizens for Time Bound Delivery of Goods and Services and Redressal of Their Grievances Bill. The legislation would, through a citizens’ charter,
require government authorities to establish a time frame within which they agree to provide goods and services and a grievance mechanism to hold them accountable for timely delivery. The agency responsible for overseeing the construction of a section of a highway, for example, would have to provide firm estimates of cost and completion dates with regular progress updates. The legislation would initially apply only at the national level, but it would play a major role in activating the sort of informed public oversight and expectations essential to efficient government operations.

Public engagement.
The governance of our country will improve only when politicians run on platforms based on how well they deliver public services rather than relying on the vocabulary of identity—caste, language, and religion. Increased transparency will give citizens the tools they need to hold their political leaders accountable for their promises, and it is to be hoped that the rising aspirations and growing political maturity of India’s youth will serve to make performance the key electoral criterion over the next decade. After all, at the next national elections in 2014, one hundred million young Indians will be eligible to vote for the first time.

In fact, we can already see the elements of a transition from identity-based to performance-based electoral politics. In Gujarat, the Bharatiya Janata Party, which began as a Hindu nationalist party, has increasingly campaigned and won on the basis of its ability to deliver public services and consistent economic growth. BJP candidates sought voter support by actually delivering on services promised and stood by their record at election time. The result was that support for BJP candidates transcended old boundary lines of caste, religion, and geography. Exit polls showed the party was rewarded for making good its promise of economic development.
A similar scenario played out in Bihar, long regarded as India’s most lawless and corrupt state, and may repeat itself in several other states in 2014.

For India to unleash its economic potential, it will require a twenty-first-century infrastructure that its public purse simply cannot finance on its own. Private sector involvement will continue to be crucial, but for it to succeed the public must feel that the services they receive are worth their own contributions (taxes) as well as the profits reaped by the investors. The Indian public and its elected officials will have to invest the time and effort to build a stable political infrastructure of administrative, regulatory, and judicial bodies that can provide predictability for investors and a sense that the public’s rights and the country’s wealth are of equal value.

Sukumar Ranganathan

Sukumar Ranganathan is editor of
Mint,
the Indian business newspaper, and
LiveMint,
its online counterpart.

In an area of Tamil Nadu state once famous for its jasmine farms, where the main source of employment used to be the cultivation of fragrant blossoms, a fast-growing but unlovely settlement of small businesses and houses called Padappai bestrides one of the national roads. Many of its jasmine fields have been sold for housing or else lie fallow in anticipation of rising real estate prices. Open drains and swaths of rubbish belie Padappai’s recent rural past, as do the demands of the customers at local shops for products they see on television, such as hair conditioners, air fresheners, fizzy drinks, processed cheese, chips, and cosmetics.

The stereotype is that Indians live in places very different from Padappai—either sleepy villages or teeming cities. In the India depicted in mass media and pop culture, hundreds of millions of people continue to reside in pastoral backwaters raising crops and tending livestock, while the rest of the population throngs metropolises with glittery high-rises and sprawling slums. The reality, however, is that India’s booming economy of the past two decades is giving rise to many places like Padappai, where large numbers of Indians already live, and the country’s urbanized future is rapidly unfolding in haphazard fashion.

Padappai is a “census town,” the Census Department’s term for a village no longer dependent on farming. The number of such towns has almost tripled since 2001, to about four thousand, according to the 2011 census. Their proliferation is bound to continue, perhaps even accelerate, as more and more farmers abandon the shrinking plots of land inherited from their forebears.

Therein lies a potential wellspring of prosperity, because large companies operating in India—both domestic and foreign—increasingly favor rural areas over cities for their factories and other labor-intensive facilities. But the governance problems of census towns pose an enormous challenge; having no formal status as municipalities, they often are unable to provide modern infrastructure and good educational systems that both their residents and major corporate investors need. And powerful interests prefer keeping the loosely organized, low-tax governance arrangements of census towns in place.

Technically, census towns are part of rural India, which according to government figures still encompasses nearly 69 percent of the population. But they are much more urban than their official classification would suggest. To become a census town, a village must have a population of at least five thousand, a density of four hundred people per square kilometer, and a male working population that is at least 75 percent engaged in nonagricultural pursuits. Although census towns exist in many parts of the country, they are not evenly spread, with two out of every three being concentrated in just six states—West Bengal, Kerala, Tamil Nadu, Maharashtra, Uttar Pradesh, and Andhra Pradesh, in that order. Kanhu Charan Pradhan, a researcher at New Delhi’s Centre for Policy Research, used Google Maps to plot the locations of the twenty-five hundred or so census towns that have emerged since 2001; his data shows dark clusters radiating from a number of industrial cities.

Several factors are driving the growth of census towns. One is the spread of India’s road network, which has served as not only an economic multiplier but also an urbanizing influence that increases movement of goods and people between villages, surrounding towns, and large cities. The total length of national highways in India more than doubled, to twelve thousand kilometers, between 2005 and 2012, according to the National Highways Authority.

The expansion of electrification and mobile-phone connectivity are also important spurs to the development of census towns and other semiurbanized villages, because people perceive economic opportunity in places where they can hook up appliances, generate light in the evening, and use mobiles to conduct business. The national electricity grid added more than 107,000 villages between 2005 and 2012, according to the Rural Electrification Corporation, and teledensity has risen exponentially, from 6.5 million mobile-phone connections in March 2002 to 920 million in March 2012.

The expanding reach of television, too, plays a key role in luring people from tiny hamlets to more urbanized settings such as census towns. Whereas census estimates put the number of Indian households with TVs at about 60 million in 2001, that number has risen to nearly 150 million households, according to TAM Media Research, and the vast majority of those have access to the radically more diverse content (movies, soap operas, talent contests, sports, and spiritual discourse) currently available on hundreds of cable and satellite channels that have emerged in recent years. As a result, rural Indians have learned a lot about how the other half lives, and their aspirations have soared along with their purchasing power.

D. Sudha, a drugstore owner in Padappai, sees the trend among the women shopping at her outlet, who are no longer satisfied with run-of-the-mill products when it comes to important considerations such as lightening their skin. “They watch television and come back with all these queries,” Sudha says. “Now they ask for Pond’s White Beauty, which I need to stock.” Thanks to higher demand, she rarely has to collect her supplies from dealers in person as she did previously; most of them deliver to her door.

The good news for places like this is that they are increasingly attractive magnets for the manufacturing plants India needs to gainfully employ its burgeoning youth population. Large companies often find it too expensive or bureaucratically troublesome to acquire sizable plots of land in major cities, given the sketchy land
and property titling procedures in many parts of the country, which have stymied countless investment projects. In rural areas, land acquisition is much cheaper and easier, if not entirely hassle-free.

Molachur, about forty kilometers from Chennai, is a census town that is benefiting from such corporate calculations. A decade ago, most of its inhabitants earned their livelihoods growing rice, lentils, and watermelons, or from embroidery. Today it is on the doorstep of factories built by Hyundai Motor India, Ford India, BMW India, Mitsubishi India, and Nokia India. That is a boon for people like Sakkayanmary, one of the few tenant farmers left, whose two younger children work at plants operated by the mobile-phone-component maker Foxconn Technology Group and the glassmaker Saint-Gobain. The siblings’ combined earnings of 7,000 rupees (about $140) a month is a tidy sum for a family accustomed to village living standards. A new ecosystem of small businesses to service the factories and their workers also provides income for many residents.

Evidence for this phenomenon is more than anecdotal. Ejaz Ghani, an economic adviser for South Asia at the World Bank, coauthored a recent report for the Harvard Business School that concluded that while informal and unorganized small industries (such as Molachur’s embroidery trade) were moving from rural areas into cities, the reverse was true of the formal industrial sector—the Hyundais and the Nokias. The trend “cuts across industries and states,” according to Ghani. He cautions, however, that “new plants tended to open in places that had better infrastructure and better education facilities.”

And there’s the rub. Though they may feel semiurban, census towns are still run by
gram panchayats
, or village councils, which have limited financial resources because they do not tax their communities, and in most of rural India no one pays property taxes. As a result, public services in many census towns and urbanized villages are appallingly substandard.
Panchayats
do obtain some funding from central government development programs, but that flow of money would dry up if the towns became full-fledged municipalities. That dilemma, and the reluctance of some residents to pay local taxes, hinders change.

The tangle of conflicting interests is evident in Boisar, a large census
town in Maharashtra state with a population of 150,000 (too many people for just one
panchayat
; Boisar has six of them). The town boasts a large supermarket, branches of private banks, and decent schools. But its roads are riddled with potholes and lined with garbage, and as for public transport, the only conveyance on offer is a fleet of exhaust-belching six-seat auto-rickshaws. For ten years, a body of residents called the Boisar Citizens’ Forum has been pressing the Maharashtra government to upgrade the town’s status to municipality—to no avail. The forum alleges that local politicians, loath to give up fiefdoms they control, are blocking progress. Another impediment is state governments, which often are unwilling to loosen their grip over certain types of patronage—the appointment of village teachers, for example.