At first sight, there is little connect between a recent report of the comptroller and auditor general of India and the stimulus package announced some time ago to revive India’s faltering economy. Be sure there is a link. And it’s not about only money lost due to waste, but the origin of that waste. It serves as an astringent to any misplaced notions of spending our way back to sound growth.
The National Highways Development Programme (NHDP) is an ambitious project that aims at creating vital road infrastructure. The first phase of the project, covering 6,359km, was to be completed by 2004 at a cost of Rs30,300 crore. By the end of 2007, around 4,760km of work had been completed at a cost of Rs33,655 crore. There were cost overruns. In addition, in the 17 projects in phase 1, there were delays in the completion of all but five projects.
These projects were unlike the usual contracts handed out by the public works departments of state governments that reek of corruption. In spite of innovative features in the contracts and the public-private partnership nature of the works, the basic problems associated with such projects, that of cost and time overruns, could not be avoided. The problem confounding the NHDP projects was the same as everywhere else in government: the inability to fix accountability and responsibility on individual government officers responsible for delays.
Imagine what this pathology of government service would do in a situation where quick action was called for. The economic stimulus package announced earlier is an example of such quick spending. The same problems are associated with other public spending programmes that envisage the creation of “durable assets”.
The assets created under such schemes don’t last very long. Projects with a technological bias, such as highway upgradation, don’t have a large multiplier effect as they don’t expend much labour compared with old-style road-building projects.
The original recipe for pump priming by Keynes envisaged the digging of ditches and then filling them up. The money wages expended for this task would then do the job of boosting consumption. What has been forgotten is that building highways is very different from digging ditches.
Will building highways have a large multiplier effect on the economy? Tell us at firstname.lastname@example.org