In a speech in February last year Arvind Panagariya, the vice chairman of NITI Aayog had expressed rather radical ideas of reform for infrastructure sector and urban development. Will they be too hot for the PM? This is the third part of a multi-part series
Prime Minister Narendra Modi appointed his long-time supporter, economist and professor Arvind Panagariya as the vice chairman of National Institution for Transforming India (NITI) Aayog. As we mentioned in the first part, Pangariya, as an economist is known for his radical views on reforms. Now, since he is the vice-chairman of NITI Aayog, it would be interesting to see, if PM Modi subscribes to these views and actually implement it.
Panagariya while speaking at the CD Deshmukh Memorial Lecture 'A Reform Agenda for India's New Government' on 11 February 2014, almost described a blue print for reforms and growth. Panagariya mentioned infrastructure as an important element in paving the way for the growth of manufacturing, but said this is a subject that requires separate consideration. Especially, for urban development, he suggested a relook into laws governing the conversion of land from one use to another, a generous floor space index, reform of rental laws, and sales of unused land held by public bodies.
The NITI Aayog’s vice-chairman had said, improved infrastructure including roads, railways, ports and electricity is essential for manufacturing growth. Because profit margins per worker are low in sectors where labour costs are 80% or more of the total costs, it is important that transportation and electricity are available to entrepreneurs at competitive rates, Panagariya added.
Highway construction, which had achieved great momentum under the National Democratic Alliance (NDA), fizzled out under the UPA. According to an affidavit filed in the Supreme Court by the United Progressive Alliance (UPA) government on 1 July 2013, half of the national highways constructed in the preceding 32 years have been constructed under NDA rule.
With growth having expanded the need for transportation, businesses as well as ordinary citizens find bottlenecks on highways everywhere. The next government will need to return to highway construction big time again. It will need to work toward widening the existing highways as well as building new expressways.
Railways offer a far cheaper mode of freight movement than road transportation. Good progress had been made during the tenure of the first UPA government but the focus shifted almost entirely to passenger trains and keeping fares low under UPA II. The next government must return to building railway transportation on an expanded scale.
India needs to cut the turnaround time at its ports to international levels to allow companies to take advantage of global markets. In today’s world of just in-time delivery, delay of even a few hours can cost a company its contract.
This is by far the most important sector in need of attention. A measure of how far behind India has fallen in the provision of electricity is that in 2003, per capita electricity consumption in India and Vietnam was equal but by 2008 the latter had pulled ahead by more than 40%. The gap today is probably larger.
It is well known that according to the 2011 Census, one-third of Indian households lacked electricity. It is not possible for employment-intensive manufacturing to flourish without the steady flow of electricity at competitive prices.
In 2003, the government had initiated a major reform of the electricity sector via the Electricity Act. Unfortunately, the reforms under this Act were never fully implemented, with some provisions reversed by the UPA government. The next government will need to return to completing those reforms. It will also need to ensure that bottlenecks in getting coal and gas to electricity generation companies are removed. Private companies must be given entry to mine coal with the eventual goal of privatizing coal mines.
Cities, large and small, are the ultimate symbol of transformation and modernization. They attract workers from the farm sector to industry and services in search of good jobs, as graphically illustrated by the experience of cities such as Delhi and Mumbai. However, often industrialization itself turns rural areas into urban areas, as exemplified by Gurgaon.
The government has an essential role to play in promoting healthy urban life and the facilitation of urbanization. India must rapidly build many more new cities and also improve the living conditions in the cities. The latter requires rapid transit in all large cities.
However, India also needs to work on the provision of low-cost rental housing in urban areas so that it avoids the creation of new slums. As discussed in greater detail in Panagariya, Chakraborty and Rao (2014, chapter 7), this will require looking into laws governing the conversion of land from one use to another, a generous floor space index, reform of rental laws, and sales of unused land held by public bodies.
The ability of local bodies to provide water, sanitation and solid waste management services will need to be greatly strengthened. This will require some coordination across Central, state and local governments.