Reply to comment

Dear Dr. Lin,

As a former banker from India there is no question in my mind that infrastructure is important but I wonder if, given scarce resources, there isn't a need to think much more carefully about how one decides which specific piece of infrastructure has the highest returns and how it must be financed. In the city of Mumbai for example development of roads and bridges including the famous (and relatively new) one over the sea (the Worli Sea Link) has been prioritised even though much of the traffic in the city is through public transportation and walking. And, for a variety of reasons the richest city in India continues to depend on Central Government largesse to finance much of this infrastructure development because its leaders refuse to levy and collect an adequate amount of property tax from its citizens and as a direct consequence do not really have to consult them when they make these decisions. The story unfortunately is not very different even at the level of the smallest unit of government in India -- the gram panchayat -- there is an even stronger reluctance to levy and collect even the existing set of taxes from its citizens.

Given this reality, where central or state government funding (as opposed to from local sources) is the principal source of resources for infrastructural projects, there is, to my mind, enormous scope for misallocation of resources - with the government, for example, "struggling" to find the $2 billion or so annually to ensure universal financial access or the $5 billion to provide broad-band connectivity and the panchayat level, while simultaneously having "found" over $10 billion for a large loan waiver programme for larger farmers.

I feel that a sense that all type of infrastructure is good, combined with soft budget constraints and the availability of resources from multilateral institutions for these large centrally financed / state government financed infrastructure projects, weakens the pressure for reform on the ground and while in the near-term citizens feel that they are getting a free ride by getting infrastructure which they are not paying for, in the longer-run I feel that these low return investments exert a moderating influence on growth impulses and exacerbate inflationary pressures and cost the citizens far more.

Therefore, while agreeing with you that infrastructure has the potential for large impact, I would be eager to learn from you how you feel one should select the most important projects and how one should use the means of financing as a tool to both pay for them as well as to ensure that the highest return investments are being prioritised.

Sincerely,

Nachiket Mor