People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 38

September 19, 2004

Paying For The Roads


Jayati Ghosh


ALMOST anywhere else in the world, the notion of a toll road implies the construction of an altogether new road, which does not replace or supplant an existing road, but adds to it. It is meant to provide an alternative -faster and better - means of travel, only for those who are willing to pay for it. So those who already reside or work along an existing road are not directly affected in terms of higher costs of transport. Similarly, shops, establishments and residence that come up on the new toll road then do so out of choice, and aware of both the advantages and costs of being on the toll road.



But in some parts of India, such as in Tamil Nadu, the model seems to be a very different one. The existing road has simply been taken over and made into a toll road, albeit with better paving (though still no street lighting to speak of). In this process of conversion, there was no attempt to ask those whose homes and places of work are situated on the road, whether they would prefer a toll road, or to give them any choice in the matter. And of course, once the decision was made, there was no attempt at any sort of compensation for those whose daily costs of transportation have increased dramatically as a result, or those whose livelihood has been affected by the increased costs faced by customers in reaching their establishments.


This remarkable insensitivity to the needs and concerns of local people in a large infrastructure project is typical of the way in which the development agenda is being set today in the country as a whole. The building of physical and social infrastructure assets has been one of the chief casualties of this.


At a national level, infrastructure investment over the past decade and more has been abysmally low. Central government spending on infrastructure investment in real terms has been less than half of the level of the decade earlier, and even lower in per capita terms. State governments, which could have taken up the slack, have been starved of resources for any sort of development, and now face very hard budget constraints.



Two principles now seem to govern the government’s attitude towards infrastructure provision in general. The first is that private investment is preferable to public investment (for which there is apparently “no money”). The second is that people should pay for the services they receive, and even implicit subsidies should be cut.


There are of course major problems with both of these perceptions. Nevertheless, for the sake of argument, let us accept them as they are. Consider the second proposition. Even if we agree that people should pay for the services they receive, there are two generally accepted ways of dealing with this. The first is to make society as a whole pay through taxation. This is the standard way in which public infrastructure was financed throughout the course of the previous century.


It makes a lot of sense to adopt this method when there are externalities involved, which means that there are positive (or negative) effects of investment that cannot be retained (or compensated for) by the private investor. The presence of such externalities typically makes the provision of the infrastructure by private investors less than that which is socially desired. Much infrastructure is characterised by (often large) externalities and “public good” features, which means that it is impossible to exclude people from consuming it. Street lighting is indeed the classic textbook case of a public good, since you cannot prevent someone who has not paid for it from benefiting from it. This is why street lighting and a whole range of similar services have traditionally been the domain of public expenditure financed though taxation.


The other way of financing such expenditure is to make the user pay. This is the philosophy that is most dominant today, and it governs attitudes to almost all infrastructure provision, even in those areas that are characterised by high externalities. This approach has many pitfalls: the problems and costs of enforcement (or making sure that all who use the service pay); and the even more important issue of exclusion, whereby the poor effectively get denied access to basic public services when they are highly priced. This is very clear in the case of health services and even electricity provision in states like Orissa.


The problem is that to be really socially useful, governments at both central and state levels have to move out of the paradigm of trying to recoup costs by charging users for what are essentially public goods. This is why the second approach (the user pays) has been so dangerous in a country like India, because it has led to systematic under-provisioning of basic infrastructure and public services. Not only are the poor excluded, but there are other economically socially undesirable outcomes, and loss of potential development. So governments have to get back to spending more on these important areas, to generate any social benefits.