Linkage between reforms, outcomes not strong in infra sector, says study

The study covered electricity, telecom and water supply, and found poor co-relation between reforms and infrastructure

A recent joint study conducted by faculty members of IIT-Madras and Harvard University has stated that government reforms in infrastructure sector did not have any significant impact on the outcomes.

The study, ‘Reforms and the Infrastructure Sector: What has been the Impact?’ by the team looked at the 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 the outcome, either positive or negative. This indicates that the linkages between reforms and outcomes are not very strong. However, the number of positive evidences were more than negative evidences. Positive evidence was found in 33 per cent of the total observations and negative evidence was found in 14 per cent of the observations,” said the study.

The study has further stated that telecom showed a higher number of positive observations on some outcomes. For instance, reforms improved access and efficiency in telecom whereas it reduced costs in the transport sector. This indicates that reforms have been more effective in some sectors than others.

The findings also dispelled a common perception that reforms are normally accompanied by price rises. Over 62 per cent of the findings showed no significant impact on prices and only 19 per cent of the observations indicated an increase in prices (a negative effect). It is also interesting to note that the same fraction of cases (19 per cent) showed a decrease in price.

Among the different categories of reforms, micro-level reforms were the most effective in achieving positive outcomes (58 per cent), whereas the corresponding ratio for macro and sector level reforms was 34 and 31 per cent respectively. “There was not much difference in the effectiveness of various sector-level interventions such as competition, private sector participation (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 per cent) was higher compared to urban, rich and literate customer segments (20 per cent). Taking into account the type of outcomes, access and quality improved for rural, poor and illiterate customer segments 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 the focus on next gen-eration 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 its promises. While the initial support for the reforms was to achieve the objective of getting foreign assistance, in many cases the actions promised by the government as 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 if the actions promised by the government are politically feasible as the entire outcomes depend upon the fulfillment 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.