India's transportation development rests on fantasies

Last Updated: Sun, Apr 06, 2014 02:30 hrs

Fans of Rakesh Mohan reports will love this leviathan of a report. With 1,220 pages spread over three volumes, the report of the National Transport Policy Development Committee takes at least a week's effort to read.

The analysis is in the second volume and this merits attention. (The third Volume is working group reports; the first a summary and introduction. Invaluable data and statistics crop up everywhere.)

Despite its heavy weight, this report's basic argument is pretty lightweight. If India's GDP were to grow at a steady eight per cent till 2032, what would be the transportation demand and the investment required for the transport sector?

The answer is that 3.3 per cent of GDP needs to be invested in transport in the Twelfth Five-Year Plan, and for the subsequent Plans this should rise to 3.7 per cent of GDP. The transport sector would be a behemoth larger than the defence sector.

In money terms, the investment requirement would be Rs 19 lakh crore in the Twelfth Plan, Rs 30 lakh crore in the Thirteenth, Rs 45 lakh crore in the Fourteenth, and a final whopping Rs 70 lakh crore in the Fifteenth Plan.

While sectoral allocations have not been worked out, Indian Railways is given pride of place and it is proposed that investment in it rises from 0.4 per cent of GDP at present to 0.8 per cent in the Twelfth Plan and then levels out at 1.2 per cent of GDP.

To finance this, the report assumes that for the public component, 70 per cent of the resources can be found from the Budget and only 30 per cent of public resources need come from internal accruals and extra-Budgetary resources.

The private sector contribution is taken to be 1.2 per cent of GDP, a third of total investment projected. Foreign investment alone is assumed to be 0.4 per cent of GDP or a third of a third.

Since the report is against directive planning of the current kind, it wants to get economic prices right so as to direct investment to the desirable sectors. It argues this can only be done through adequate regulations; it therefore builds up a case of overarching regulators and a multi-modal approach to transport planning.

As none of this can be done by existing governance institutions, it proposes a super-ministry of transport to cover all the sectors. As a final fantasy, it proposes a technically equipped high-level office of transport strategy which is independent of the super ministry.

Super-ministries and super-ministers are jealously viewed in a single party government. In coalition governments they never find a place. To make matters worse, only civil aviation and the railways are on the Union list. For both the roads sector and the ports sector, the union government has an important but marginal role.

Only National Highways and major ports are on the Union List. A super-ministry as proposed would be a constitutional impossibility and a political death-trap. Equally unlikely is the high-level office of transport strategy - independent of the ministry, it is supposed to lay down strategy which presumably the ministry meekly accepts. No ministry, least of all a super-ministry, would be willing to surrender its strategic policymaking to a technocratic body. Even worse, Parliament would regard such a body as an encroachment on the principle of accountability to Parliament.

At a more micro level, this report calls for greater transport investment in the under developed Chhattisgarh-Odisha-Jharkhand tri-junction, the source of much of our coal and iron ore.

It does not pause to consider the insurmountable hurdle of left-wing extremism. Nor is land acquisition ever a challenge. Oscar Fernandes has recently pointed out that NHAI has built roads in Kerala where the cost of land acquisition was greater than the total cost of road construction. So far land acquisition costs were below 10 per cent of total costs. In this climate private-sector investment will be scarce.

The straightforward linear forecasts of the underlying econometric models are easy to fault, and will definitely prove erroneous in the longer run. As technology changes, efficiencies improve and system equilibria relocate. Similarly, changes in relative prices can produce unforeseen substitution effects. Planners 20 years ago did not foresee road transport taking over from railway freight the way it has.

A non-econometric approach such as scenario building is the normal way of constructing long-term models. Given the acute budgetary constraints of the Government of India, the persistent shortage of energy and the international carbon reduction pressure, the future development of transport can only take place in a cheaper, energy-efficient mode.

Future planners will try and squeeze out the maximum externalities from any project. More modern economic tools like spatial planning can help in this.

New economic geography, for which Paul Krugman won a Nobel, underpins much of the contemporary thinking of transport corridors and industrial corridors. It doesn't get a look-in in this report.

Asean has used this approach to project the greater Mekong corridor and its western extension to the Delhi-Kolkata, Delhi-Mumbai and Delhi-Chennai corridors. This report misses the point of the new economic geography of Asean.

Unforgivably, it periodically betrays ignorance of Indian geography. It calls for a railway line from Tirap in Arunachal Pradesh to Sittwe in Myanmar, ignoring the razor sharp Patkhai hill ranges in between. Similarly, it proposes setting up sea-ports every 25 km of the coast (presumably irrespective of the depth of draft available).

This report believes in demanding more and cares little for inflation. It could have kept budgetary constraints in better focus and thrown more light on carbon- reducing innovations.

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