A recent joint study, from faculties of IIT Madras and Harvard University, stated that the government reforms in infrastructure sector did not have any significant impact on outcome, either positive or negative. This indicates that the linkages between the reforms and outcomes are not very strong, said in the study.
The study titled Reforms and the infrastructure sector: What has been the impact? by A Thillai Rajan, Associate Professor, Department of Management Studies, IIT Madras, Sudhir Chella Rajan, Professor and Head, Department of Humanities and Social Sciences IIT Madras, and Akash Deep Senior Lecturer, Harvard Kennedy School, Harvard University, looked at impact of reforms in the three primary infrastructure sectors: electricity, telecom, and water supply. The impact was examined on five different outcomes access, cost, efficiency, price, and quality.
“The key finding was that in a majority of instances, the reforms did not have any significant impact on outcome, either positive or negative. This indicates that the linkages between the reforms and outcomes are not very strong. However, the number of positive evidences was more than negative evidences. Positive evidence was found in 33% of the total observations and negative evidence was found in 14% of the total observations,” said the study.
It was further stated, Telecom had a higher number of positive observations on some of the outcomes. For instance, reforms improved access and efficiency in telecom whereas it reduced costs in transport sector. This indicates that reforms have been more effective in some sectors as compared to others.
The findings also dispelled a common perception that reforms are normally accompanied by price increases. More than 62% of the findings showed no significant impact on price and only 19% of the observations indicated an increase in price (i.e., a negative effect). It is also interesting to note that the same fraction of cases (19%) showed a decrease in price.
Among the different categories of reforms, micro level reforms were the most effective in achieving positive outcomes (58%), whereas the corresponding ratio for macro and sector level reforms was 34 and 31% respectively. “There was not much difference in the effectiveness of various sector level interventions such as competition, PSP, regulation, and reform”.
Negative outcomes were dominant for some of the outcomes. For example, in telecom PSP led to an increase in telecom prices in the long run (which was a little surprising), and a higher level of regulation led to reduction in quality of service. In the case of water sector, micro level interventions had a negative impact on efficiency – which is not much of a surprise. Implementing project level initiatives leads to a reduction in economies of scale, thereby leading to a reduction in efficiency.
The impact on different customer segments indicated that the proportion of positive outcomes for rural, poor, and illiterate segment (33%) was higher as compared to urban, rich, and literate customer segments (20%). Taking into account the type of outcomes, access and quality improved for rural, poor, and illiterate customer segment as a result of the reforms. This again runs counter to the perception that the marginal sections of the society do not enjoy the benefits of such reforms.
Actions needed
The study has stressed on the need to implement the next stage of reforms including focus on next generation reforms that would create strong regulatory institutions (such as incentive based regulation rather than rate of return regulation) and enable competition in the marketplace.
Transparency can play a key role in achieving positive outcomes. While reforms do improve transparency, improving the level of transparency is not their main objective.
The study said, on occasions, reforms have failed as the government was not able to keep up its promises. While the initial support for the reforms were to achieve the objective of getting foreign assistance, in many cases the actions promised by the government as a part of the conditionalities were not politically possible or politically unlikely. Without appropriate follow up measures, the outcomes from such interventions therefore fell short of expectations. Therefore it becomes important to determine at the outset whether the actions assured by the government are politically feasible as the entire outcomes depend upon the fulfilment of those promises.
Recognising the limitations and trade-offs on different outcomes, customising the reforms to suit the local context and need for a greater understanding of the linkages between reform and outcomes are some of the key recommendations of the study.
