By creative policy not rigid rules

By creative policy not rigid rules

Is the central government wrong to mandate private participation in any metro rail project it part-finances? Metro-man E Sreedharan thinks so, emphatically. He can list a number of instances of failed private participation in India and abroad. Rigid rules on the nature of ownership of infrastructure projects do not make sense, whether for or against private participation. The Centre can limit its participation in a project put up for co-financing to a level it thinks fair, given the size of the population of the city the metro seeks to serve. Beyond that, how the concerned state or local government seeks to finance it is not the Centre’s business. Malayalis who work in West Asia have funded airports in Kerala on considerations other than financial returns. That said, it does not make sense to bar private investment in any kind of infrastructure.
The bulk of the trillions of dollars of global savings seeking profitable deployment anywhere secure comprises non-state funds. It makes eminent sense to draw them into creating much-needed new infrastructure in the developing world, whose economic returns would be significant. If commercial returns do not capture the full extent of economic returns in a particular project, deterring private investment, the government can remedy that in many ways.
An outright subsidy is one option. More desirable would be measures such as levying a carbon tax on petro-fuels and congestion charges on road use that would make the fares needed to make a metro commercially attractive seem perfectly acceptable in comparison with travel by road. Would this not be a big burden on the common man?
Cheap transport for the urban commuter ultimately subsidizes the business that employs that commuter. If this subsidy is removed, the costs and revenues of the business would reconfigure, that is all. Clean transport would improve health and lower healthcare costs as well.
Simply mandating a private role in infrastructure would not work. Supplementary action is required to make it attractive for the private sector to invest in infrastructure. That calls for policy innovation, not diktat.