Getting the auction right

Nov 23 2012, 09:54 IST
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SummaryWhen allocating resources, the government should simply set conditions for service delivery standards and hold an auction on those principles

This is the story of the biggest audit the CAG never did. It shows how, in India, both the auditor, and the executive it is supposed to pull up, work more like accountants than policymakers. They make essentially the same mistakes that cost the country dear and make an irrefutable case for an auction-led policy.

The story begins somewhere around the time India had begun to develop its major airports by adopting the public-private partnership model in the early 2000s. The mandarins of civil aviation and the finance ministry did a pretty sloppy job with the first of those, the Bangalore airport. The next one, Hyderabad, was better executed. Then, work began on the Delhi and Mumbai airports almost simultaneously.

The Delhi airport contract was relatively easy to negotiate, as there were kilometres of barren land available around the then puny airport to build the larger entity on. The key decision was on Mumbai. There was no land around the domestic or international terminals to accommodate the expected burst in passenger traffic. Yet, instead of deciding on a new airport for Mumbai, the government spent months working out how to use the land around the Delhi airport a far less significant issue and the expansion of the capacity of the current Mumbai airport.

The result is that when the auditor came calling, it was fascinated by the story of land around the Delhi airport, had little to observe about the commercial rationale of the airport, and completely ignored the real land scam that was unfolding in Mumbai.

Any comparison of land prices in the colonies around the Mumbai airport since 2004 and now with the rest of Mumbai during the same period will show the windfall profits made by the former area. In the process, the city has got more clogged, a new airport is still nowhere in sight, and an expressway that could have led to the new airport is not even in the realm of conjecture.

Of course, the land parcels around the current Mumbai airport are not government owned. But the highly inefficient decision to carry on with the current airport and the economic consequences for Indias infrastructure that flow from it, should certainly have been the concern of the government auditor in some form.

The auditor has never made this connection due to the same myopic vision that clouds a large part of our economic policymaking. This is the reason

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