Welcome write-off: Acknowledging failure of 116 projects is the first step

It is true that the government should not throw good money after bad, but failed projects should at least be used as lessons to improve the implementation of future infrastructure projects

An internal report from the NITI Aayog, which serves as the Union government’s think tank, has recommended the removal of 116 infrastructure projects from the overall project-monitoring system. As reported in this newspaper, this may amount to a declaration that these projects should not or cannot be completed for various reasons. It is unusual for a government agency to recommend turning the page on public investment that has gone bad, and for that reason alone this suggestion is to be welcomed. There is no reason for the Union government to keep on throwing good money after bad. According to the report, over Rs 20,000 crore has been spent on these projects, but hopes for their completion are now dim enough that allocating more resources will not help.

Unsurprisingly, most of these projects are in the permission-heavy road and rail sectors. These have been delayed for various reasons. One major reason, of course, is the problems of land acquisition — especially for highways. This is not always a problem with just private landowners. In some cases there are disputes between the Union and state governments and they have come in the way of clear land titles and full approvals. The Union versus states element is also visible in that some of these projects were supposed to be part-paid by states, but the state governments have decided not to put their share of the money in. Whether this is because of a local government change or for other reasons is unclear. Naturally, some other projects have been held up due to environmental clearances being delayed. But these are a clear minority as compared to those held up because of instances of red tape, land delays, or internal disagreements.

It may be necessary in the context of this report to consider once again the problem of land acquisition for infrastructure projects. In some cases, the requirements outlined for land for certain projects might be considered maximalist. In other cases, the problem is one of benefit sharing. For example, if a road is being built to bring broad benefits to the area at the cost of the land of a few of those who own property abutting the planned route, there must clearly be a Pareto-improving reallocation of benefits to the property owner that allows for the road to be built and for a general increase in total welfare. In other words, problems with land acquisition for beneficial and growth-inducing infrastructure will exist only if the compensation system is improperly designed or fails to inspire trust among the landowners.

These problems must be less acute today than they were a decade ago, when land acquisition stalled, or even at the beginning of the current government’s term when it tried to amend the land acquisition law. They are less acute because of increasing financialisation of savings, greater financial literacy, and the spread of bank accounts. In the 2000s, it was difficult to even convince some landowners that financial compensation was trustworthy and would be available to them. It may be time for the government to take another look at land acquisition, benefit sharing, and compensation mechanisms. These 116 projects may have failed, but they should at least be used as lessons to improve how the Union government plans and implements the building of public infrastructure.