The Wrong Road?

If wishes were horses, they say, beggars would ride. Likewise, if creating funds were all that was required, India would have been a more prosperous country by now. So sceptics should not be criticised when they shrug off the idea of creating a new highway fund, cleared by the cabinet on Monday.

One must hope that this fund will meet with more success than its numerous lateral cousins. But such is the variety of the problems associated with highway development in India that money alone is unlikely to lead to a solution. Indeed, in some ways, money is not even the critical element. It is probable that if the other problems are sorted out first, money will flow in quite smoothly.

 

So what are these problems? The first and foremost is risk mitigation. Private money is unlikely to flow in meaningful quantities unless investors are assured that the various risks have been successfully taken care of. In India, the problem in the case of infrastructure in general and roads in particular is that it is hard to separate commercial from political risk.

Thanks to the notion that infrastructure of all kinds, roads included, are public goods, pricing is controlled by politicians. Since the objective function that they seek to maximise (road facilities) is quite different from the one that the investors are seeking to maximise (profits)