Friday, March 15, 2013

The opportunity cost of India's subsidies and the foregone roads

Niranjan Rajadhyaksha writes in Mint,
The subsidy bill since fiscal year 2004 has grown nearly six times, far more than the growth in the underlying economy in nominal terms. The gross number is even starker: the two Manmohan Singh governments have spent a cumulative Rs.11.82 trillion on various subsidies over the past decade... Subsidies have crowded out spending on public goods. Just ask yourself what could have been built if at least half of those Rs.11 trillion had been redirected to build new infrastructure... building a kilometre of a good rural road costs about Rs.5 crore per km, which means that India has effectively given up around 20,000 km of new rural roads, assuming one-tenth of the subsidy spending since 2004 had been used to build new rural roads. One could come to similar conclusions about new schools or drinking water schemes or public toilets... Look at what China has built in the past five years: 19,700km of new rail lines, 609,000km of new roads or 31 airports.
I am in particular struck by the 20000 km new rural roads. This blog has consistently argued that all-weather roads and three-phase electricity supply are the two most effective anti-poverty and development interventions. Furthermore, the absence of all-weather roads attenuates the effectiveness and sustainability of any other development intervention, whereas its presence amplifies their long-term value.

1 comment:

Anonymous said...

Naive and lazy comparison. Would a spending of Rs 1 crore really translate into 1 km of all-weather road? Can we do such calculation on spending on road infrastructure by states and the center during the last two decades and check the road output?

The truth is India has little capabilities left to turn the spending on public goods or even subsidies into meaningful outcomes. What India desperately needs is building institutional capabilities and a system of accountability. If there is anything that can deliver the best bang for the first few billions of public spending, it would be spending on IT-enabled governance and management systems that would promote objectivity, accountability, and efficiency.