Vinayak Chatterjee: Building on definition

Last Updated: Sun, Jul 08, 2012 19:51 hrs

A decade ago, nobody would have bothered about defining infra. Roads, ports, railways and power plants were built and run by the state, and that was that. As private involvement gathered momentum, along came a slew of enabling policies, tax concessions and special benefits to encourage investments. Suddenly, everybody wanted to be included in the definition of infrastructure. Housing and township developers claimed they were “essential” social infrastructure, as did the health and education sector. Hotels, ropeways and convention centres said they were tourism infrastructure; and some commercial vehicle manufactures argued that if railway rolling-stock was infra, so were they!

So, various arms of the government came up with their own lists of what constituted infra. These included the Reserve Bank of India, or RBI (lending), RBI (external commercial borrowings), Insurance Regulatory and Development Authority (Irda), income tax department, Securities and Exchange Board of India (Sebi), Department of Economic Affairs, National Statistical Commission, Central Statistical Organisation, Empowered Sub-Committee of Committee on Infra (read Planning Commission), Economic Survey and India Infrastructure Finance Company. By 2010, there were at least 14 official lists floating around.

The Prime Minister’s office, in a memo dated August 4, 2009, asked the finance ministry to “urgently consider and resolve the issue of uniform definition of infrastructure”. The task was entrusted to the Department of Economic Affairs in the finance ministry. From late 2009 to early 2012, “consultations” were held. Finally, on March 1, 2012, the Cabinet Committee on Infra approved a harmonised list with 29 sub-sectors of infra (see table).

The exercise clearly recognises that in an emergent market like India, a “definition” is likely to require inclusion of more sectors as development occurs. It, thus, provides for an institutional mechanism to regularly update the master list through a committee chaired by the secretary of Department of Economic Affairs. The other members of this committee rightfully include: member-secretary of Planning Commission, secretary of Department of Revenue, chief economic adviser and representatives from RBI, Sebi, Irda and the Pension Fund Regulatory and Development Authority. The secretary of an administrative ministry or department concerned is also invited. With the increasing “PPPisation” of Indian infra, some private sector representation could have been provided for.

Attempts to define “infrastructure” typically use one or more combinations of the following 12 characteristics:

(i) Essential inputs to the economic system or “universal intermediate”.

(ii) High sunk cost

(iii) Natural monopoly

(iv) Non-tradability of output

(v) Economic versus financial return — “externalities”

(vi) High asset specificity

(vii) Non-rivalness in consumption

(viii) Network character

(ix) Content versus carriage

(x) Large land agglomeration projects with trunk-infra requirements

(xi) Public versus private goods

(xii) Possibility of price exclusion

The government has taken the position that consideration for inclusion will be on the basis of satisfying seven of the 12 characteristics — the ones marked in bold.

In choosing only these seven characteristics, the government has sent out some interesting messages.

It has decided not to include housing and residential townships as infrastructure even though it includes education institutions, hospitals, common infra for industrial parks, special economic zones and tourism facilities. Clearly, it has steered clear of real estate! In the process, large land agglomeration projects with trunk infra requirements (like IT campuses, industrial parks, cluster development, logistics and warehouse parks) have also been left out. This is a pity since projects of this nature should not be confused with real estate, and are essential to cope with huge urbanisation pressures. Township development à la Lavasa, Delhi Mumbai Industrial Corridor nodes, Aerotropolises et al need to be encouraged and included in the definition.

It takes a definitive view that “essential inputs to the economic system” – often referred to as “universal intermediates” – are not infrastructure. Powerful lobbies, supported by influential sarkari economists have often argued for coal, steel, cement, petroleum, natural gas and iron ore being brought into the definition of infra. This has not happened; other than the (surprising and irrational!) inclusion of fertiliser capital investment. This evidently has not been removed since the current finance minister had slipped it into the 2011-2012 Budget announcements.

The debate between “carriage versus content” has been settled. Water is content. But a water pipeline is carriage. Oil is content but an oil pipe-line is carriage. A port is carriage, but a ship is content. A road is carriage, but trucks are content. In the master list, all items of “content” nature have been left out.

Therefore, ships, aircraft, rolling stock and road-based public transport, mobile telephony, mining, oil production and refining have been pushed out of the sarkari definition.

Finally, the big question mark relates to infra operations and maintenance (O&M). Currently, much of the nation’s focus is on asset creation. But infrastructure is as much about making assets work smoothly and meet expected service delivery standards. Making infrastructure assets “work” is the responsibility of O&M companies. Dredging regularly is as important as building a new port. Maintaining stretches of roads and highways and collecting toll is as important as building a road. Running the water supply system of a city is as important as laying the pipelines and pumping stations. Therefore, infra O&M activities in the selected sub-sectors should also be added to the definition of infrastructure.

Well begun is half done!

The writer is Chairman of Feedback Infrastructure. These views are personal.

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