Paradoxes of Infrastructure Subsidies in India
India's infrastructure subsidies aimed at aiding the poor have ironically limited benefits for the intended beneficiaries and hinder efforts to achieve a "Viksit Bharat" (Developed India). A reassessment of these subsidies is essential to transform India into a manufacturing powerhouse, thereby better serving the poor. Solutions like well-designed direct benefit transfers for the genuinely needy are available in this IT-savvy nation.
Power Sector Reforms
- In the 1990s, power sector reforms began with unbundling of electricity boards, leading to private sector investment.
- Private power generation now represents nearly half of India's installed capacity.
- Challenges persist in the distribution sector, dominated by state-owned discoms, which cover over 90% of electricity consumption.
- Subsidies for farmers, especially in the form of free or low-cost power, result in significant losses for discoms, affecting technology investments and public sector banking systems.
- Despite several bailout and restructuring schemes since 2001, states hesitate to increase agricultural power tariffs, a solution to the discom debt problem.
- The policy disproportionately benefits large farmers, leading to groundwater depletion and reliance on rain-fed farming among marginal farmers.
Railway Network Issues
- The Indian railway monopoly transports 13 million people daily with heavy subsidies in non-premium services.
- Passenger service costs ₹1.38 per km, but passengers pay only 73 paise, a 47% subsidy.
- Cross-subsidization from freight and premium AC services is insufficient as the railway loses market share to road transport and low-cost airlines.
- Investment in upgrading services and infrastructure is ongoing, yet general and non-AC travel remain uncomfortable, overcrowded, and unhygienic.
- Railway freight services face issues like slow speeds and poor last-mile connectivity, losing market share to private road transport.
- Future operationalization of dedicated freight corridors could potentially alter market dynamics.
