INDIA INFRASTRUCTURE REPORT 2003

Editor: SEBASTIAN MORRIS

Associate Editor: RAJIV SHEKHAR
Project Co-ordinator: ANUPAM B. RASTOGI

R.V. Anuradha Independent Consultant, Mumbai

Samir K. Barua Indian Institute of Management, Ahmedabad
Sandeep R. Bharatwaj Indian Institute of Management, Ahmedabad
S. Mahendra Dev Centre for Economic and Social Studies, Hyderabad
Alice George Infrastructure Development Finance Company Ltd, Mumbai
Ashima Goyal Indira Gandhi Institute of Development Research, Mumbai
Mahendra R. Gujarathi Bentley College, Waltham, MA
Rekha Jain Indian Institute of Management, Ahmedabad
Piyush Joshi Independent Consultant, Mumbai
Ravikant Joshi Independent Consultant, Vadodara
Dilip Karmarkar Yashavantarao Chavan Academy for Development Administration
Ajit Karnik Department of Economics, University of Mumbai
Deepa Kheskani Indian Institute of Management, Ahmedabad
Mukesh P. Mathur National Institute of Urban Affairs, New Delhi
Priya Mathur The World Bank, New Delhi
Shantanu Mitra Department for International Development, Delhi
Alice Albin Morris Unnati, Ahmedabad
Sebastian Morris Indian Institute of Management, Ahmedabad
Utpal K. Mukhopadhayay Government of Maharashtra (Principal Secretary), Mumbai
Ajay Pandey Indian Institute of Management, Ahmedabad
Abhay Pethe Department of Economics, University of Mumbai
Vijay Pillai Department for International Development, Delhi
G. Raghuram Indian Institute of Management, Ahmedabad
Anupam B. Rastogi Infrastructure Development Finance Company Ltd, Mumbai
Binayak Rath Indian Institute of Technology, Kanpur
V.J. Ravishankar The World Bank, New Delhi
Amit Sadhu Indian Institute of Management, Ahmedabad
Tapas K. Sen National Institute of Public Finance and Policy, New Delhi
Sidharth Sinha Indian Institute of Management, Ahmedabad
S. Sriraman University of Mumbai, Mumbai; now Gokhale Institute of Economics and Politics, Pune
A. Vaidyanathan Madras Institute of Development Studies, Chennai
Biju Varkkey Indian Institute of Management, Ahmedabad
Jayanth Varma Indian Institute of Management, Ahmedabad
Krishnan Venkataraman Indian Institute of Management, Ahmedabad
Mahesh Vyas Centre for Monitoring the Indian Economy

The views expressed in the report are those of the individual authors and not the institutions they are affiliated to.
INDIA INFRASTRUCTURE REPORT 2003
Governance Issues for Commercialization

3iNetwork
Infrastructure Development Finance Company
Indian Institute of Management, Ahmedabad
Indian Institute of Technology, Kanpur

1
 FOREWORD

Three years ago when the 3iNetwork produced the first of the infrastructure reports, I was less than sanguine that we
would be able to sustain an annual series of substantive reports on particular thematic areas affecting infrastructure
development. It is with great pleasure and satisfaction that over time, we have tried to tackle increasingly difficult issues.
India Infrastructure Report 2003 (IIR 2003) has taken the theme ‘Public Expenditure Allocation and Accountability’
reflecting the unchanging manner that India has chosen over decades to control the allocation of public resources. This
is, perhaps, the single most important systemic change that we need to engineer to usher in an investment climate that
helps investors, both, public and private, and operators to emerge.
IIR 2003 emphasizes how central, state and local governments decide on public investments to be made on infrastructure
projects within their jurisdiction and trace the consequences of these decisions. While the traditional process of budget
preparation at all three levels plays an important part in infrastructure spending, a number of papers in this report suggest
that after the expenditure is budgeted there is little monitoring of investments or measurement of outcomes to gauge the
efficiency and efficacy of those investments. This arises despite the fact that the Comptroller and Auditor General which
is the primary watchdog of government expenditure and, more recently, the Expenditure Commission have made many
observations related to these expenditures.
Unless we can create framework conditions for the efficiency of investments in infrastructure, both public and private,
with a speed of application in an environment of relative stability and clarity we will not be able to solve some of the
most important issues in infrastructure investments this country has yet to make. This is why we have concentrated on
trying to understand the shortcomings of present methodologies of making public investments especially in the infrastructure
sector. Infrastructure makes up a large portion of public expenditure and success here can provide a fillip to economic
growth. If this can be work out, more sophisticated techniques for infrastructure finance will evolve over time. We feel
that this theme is so fundamental to arriving at the right policies that we have embarked on looking at how government
expenditure in infrastructure can be better spent. Much research needs to be done and important work is currently in
progress.
IIR 2003, like its predecessors, is the joint effort of many practitioners, researchers, policy makers, and teachers. IDFC’s
role in the 3iNetwork is to facilitate current thinking on issues related to all aspects of infrastructure investments and
to provide strong inputs into underlying thematic concerns. Unless we get the big picture right we cannot embellish it
in a thousand different ways. In matters such as these there is always room for differences. We strongly believe that
sustainable frameworks can only be built through such free exchange of ideas and opinions. We do not necessarily subscribe
to every point of view expressed by the many contributors to this volume, but we do believe that a platform for sharing
these approaches in the interests of open debate is necessary for real solutions to emerge that will benefit the public at
large. Our focus of attention is to find solutions to vexing questions so that real progress can be made on the ground
as quickly as possible.
Apart from this annual report, the network has also undertaken several projects and is currently examining some key
issues in infrastructure governance. The network has contributed to technical issues for electricity regulation especially
with respect to power distribution and transmission; developed software tools to assess the environmental impact of coal
based power plants, and is making progress on projects such as inter-city comparisons of service quality and evaluation
of performance in road concessions. This software is available on the network’s web site at www.3iNetwork.org.
vi Foreword

I would like to thank our publishers the Oxford University Press who have played an important role in making these
reports available all over the world at an affordable price.
I am sure that those interested in the subject will find IIR 2003 as informative as the earlier two. Clearly the foundations
for a very different operating environment in infrastructure development are being created piece by piece and very shortly
we will see the fruits of these efforts.

Nasser Munjee
 ACKNOWLEDGEMENTS

Almost twenty years ago when I began my career as a journalist for Business India, I had to study the milk business and
the valiant efforts made by the National Dairy Development Board to take Operation Flood further in Bihar. I then came
face to face with government corruption and mismanagement of expenditure in that state. The spending departments such
as the PWD had to bribe the revenue departments to release funds! A part of that corruption finally blew up into the
fodder scam which involved the emasculation of at least three levels of governance. However, it is interesting that due
to the NDDB’s efforts to put through a correctly designed programme for change milk is plentiful and the market grew
to take developments further. The anger and shock of those days has remained with me although I believe I now have
a better understanding on why governments and bureaucracies behave the way they do. For change to take place, one
needs to understand and discover the key ‘leverage points for change’—not an easy task when the subjects are the government
and the economy.
When Nasser Munjee put forward the idea of focusing this report on public expenditure accountability, it appeared
to be the next logical step to the discussion on governance covered in the last report. For many of us it was an opportunity
to again look at the systemic aspects of governments functioning, developing our own understanding as we went along.
The topic necessarily involved public finance, even though the intention was to go beyond traditional, public finance to
look at the expenditure and budgetary processes uncovering the dysfunctionalities. We expanded the 3iNetwork to include
people and institutions with greater experience than the original three institutional members. This report covers interesting
issues missed in public discussions on the topic of public expenditure management. We thank Nasser Munjee, Anupam
Rastogi, and Partha Mukhopadhayay of the IDFC for supporting us so fully. We have suggested that the solution to bringing
about accountability in public expenditure management lies in bringing in the private sector, citizens and consumers of
public services, in ways that still need to be recognised, designed and crafted. To discuss the problem meaningfully we
had to go into the macroeconomic environment and the domain of the governmental and organizational processes and
the adherence to laws and contracts. We thank our readers from the more narrow field of infrastructure development for
their bearing with us on this broader area, because we are convinced that lasting change has necessary to be systemic and
institutionalised.
Our brainstorming sessions held in Mumbai brought out interesting ideas. We are grateful to all the participants of
IDFC. We thank all the discussants. The subsequent writers’ workshop to discuss the papers was held at Lonvala. We
thank the HDFC Centre for taking good care of us.
We thank the following for their formal and informal communication which in some manner influenced the course
and content of the report—A Vaidyanathan, A.K. Mittal, Abha Singhal Joshi, Abhay Pethe, Aditi Joshi, Ajay Narayan,
Ajay Pandey, Ajay Shankar, Ajit Karnik, Alice Albin Morris, Alice George, Amit Sadhu, Amita Shah, Anoop Singh, Anoop
Seth, Ashima Goyal, Atanu Chakraborty, B.P. Pundhir, B.R. Marwah, Bharti Solanky, Bimal Giri, Binayak Rath, Bithin
Datta, Brij Kothari, Cherian Thomas, Deepa Khekani, Dheeraj Sanghi, Dilip Karmarkar, Dinesh Awasthi, Errol D’Souza,
G. Raghuram, Gajendra Haldea, Geetam Tiwari, Indira Ananth, Jahar Saha, Jayanth Rama Varma, Jeemol Unni, Jerome
Morris, Keshab Das, Krishnan Venkataraman, M.H. Jowher, M.P. Mathur, M.Y. Rao, Madhurima Bansal, Mahender
Gujarathi, Mahendra Dev, Mahesh Vyas, Mukesh Sharma, P.K. Taneja, Piyush Joshi, Prem Kalra, Priya Mathur, R. Nagaraj,
R.V. Anuradha, Rajiv Shekhar, Rakesh Basant, Ravi Saxena, Ravikant Joshi, Rekha Jain, Riddhi Barman, S. Manikutty,
S. Sriraman, S.K. Barua, Sadashiv Rao, Sandeep R Bharatwaj, Satyananda Sahoo, Saumyen Guha, Shantanu Mitra, Sidharth
viii Acknowledgements

Sinha, T. Janodia, T. Madhavan, T.V. Ramanayya, Tapas K Sen, U.N. Ananth,V.J. Ravishankar, Utpal K. Mukhopadhyay.,
Vijay Pillai, Vijay Ranchan, Vinod Hari, Vinod Vyasuslu, Y.M. Shivamurthy, and Y.V. Reddy.
My special thanks to Anupam Rastogi for helping with the editing, and especially for his incisive and pragmatic
comments on my own contributions to this report. Mahesh Vyas provided the statistical appendix which was put together
by Lakshi Raghavan Murali of the CMIE and Bhavin Kothari of IIMA.
I thank Jahar Saha for the personal encouragement and concern he has shown in this endeavor, and the active support
that IIMA provided. I also thank J.S. Chokkar, and Bakul Dholakia for their continued support and encouragement. I
also thank N. Jhaveri for his valuable suggestions. The Computer Services Group ensured a well-functioning and very
reliable network for which I am grateful.
Urmil Anjaria my secretary was ever ready to make repeated corrections at all odd hours. N. Sridhar provided help
with collation of data. Gracinda Rodrigues helped with the coordinaton of the brainstorm session in Mumbai and the
Workshop at Lonavala. We cannot thank her adequately for her tireless efforts. To the editors of Oxford University Press
we are in debt, not only for the editorial work, but also for their persuasive ways that were crucial in many of us being
able to deliver the papers on time.
To M.H. Jowher I owe a debt I can never pay, for helping me recover from the shock of being witness to the dastardly
events that happened in Gujarat, and with time to be able to focus on this report and my work.
On behalf of all the contributors, I thank all those who have helped us put together this report.

Sebastian Morris
Ahmedabad
 CONTENTS

List of Tables xiii

List of Boxes and Figures xv
List of Abbreviations and Acronyms xvii

1. OVERVIEW 1
Sebastian Morris
Expenditures and Process 4 • Public Procurement 7 • Capital Expendiures and Cost Overruns 8 • Erc
Reports 9 • Social Expenditures 9 • The Idea of Private Finance 10 • The Local Bodies 12 • BEST and
MMC 13 • Rural Infrastructure 14 • Other Sectors 15 • Conclusion 16
References 17

2. EXPENDITURE ACCOUNTABILITY AND THE SOCIETY 18

2.1 Expenditure Accountability in India: The Interlinkages 18
Sebastian Morris
The Challenge of Public Expenditure Accountability 18 • Dimensions of Expenditure Allocation
20 • Performance Linkage 23 • Organizational Processes and Accountability 24 • Budgeting 27 •
The Central Budget and Transparency 29 • Reviewing the Trends in Expenditure 30 • Summary
34
2.2 Budgetary Processes: A Political Economy Perspective 48
Ashima Goyal
Sources of Surplus 49 • Budgetary Institutions 50 • Political Processes 52 • History 54 • Other
Countries 57 • Policy and Structural Change 59 • Conclusion 62
References 63

3. THE INFRASTRUCTURE SECTOR IN INDIA, 2001–2 65

Anupam B. Rastogi
Telecom 65 • Transport 68 • Ports 71 • Airports 72 • Railways 73 • Power 75 • Urban Infrastructure
79 • Water 80 • Solid Waste Management 80 • Special Economic Zones 81 • Rural Infrastructure 82 •
Infrastructure for Agriculture Sector 83 • Conclusion 84
References 84

4. FISCAL AND PROCUREMENT PROCESSES 85

4.1 Improving Sub-National Fiscal Responsibility in the Federal Context of India 85
Tapas K. Sen
x Contents

4.2 Public Procurement and the Private Sector 92

Ajay Pandey
Issues in Procurement 93 • Issues in Public Procurement 95 • Some Illustrations from CAG Reports
98 • Conclusion 102
4.3 Budgetary Processes at the State Level 105
Shantanu Mitra & Vijay Pillai
Infrastructure Status of Orissa and Andhra Pradesh 105 • Fiscal Status and Public Expenditure
Patterns of Orissa and Andhra Pradesh 106 • Budgetary Processes 109 • Strategic Planning and
Budget Formulation 110 • Budget Execution, Accounting, and Monitoring 112 • Audit and
Evaluation 113 • Reform Directions 113 • Development of Reforms in Orissa and Andhra Pradesh
114 • Conclusion 116
References 116

5. EFFICACY OF GOVERNMENT EXPENDITURES 118

5.1 Public Investments in India: Delays and Cost Overruns 118
Sebastian Morris
Cost and Time Overruns 118 • Impact 123 • Conclusion 127
5.2 Capital Expenditure Budgeting Process in the Indian Railways 128
S. Sriraman
Funds for Capital Expenditure 128 • Capital Investment Policy 128 • Dysfunctionalities 129 •
Underfunding Projects 130 • Depreciation Policy 130
5.3 Ministry of Urban Development and Poverty Alleviation: A Critical Examination 132
Biju Varkkey
Institutional Framework for Urban Management in India 132 • Activities and Departmentalization
of the Ministry of Urban Development and Poverty Alleviation, GOI 132 • Thus Far Review of
Activities 132 • Challenges Ahead 136 • Conclusion 137
5.4 Office of the Comptroller and Auditor General of India and the Accountability in Government 137
Ajay Pandey
Office of the Comptroller and Auditor General of India 137 • Effectiveness of the CAG Audits
138
References 139

6. THE STATES AND SOCIAL EXPENDITURES 140

6.1 Finances of Governments and Their Capacity to Spend 140
Tapas K. Sen
Overview of State Finances 140 • Financing of Government Expenditures at the State Level 142
• Genesis of Fiscal Imbalance at the State Level 145 • Fiscal Imbalance and Composition of
Expenditures 147 • State-Level Initiatives and the Immediate Future 149 • Conclusion 150
6.2 Social Sector Expenditures in India: Trends and Patterns 150
S. Mahendra Dev
Combined Centre and States 151 • Expenditure by Central Government 152 • Expenditure by
States 155 • Comparisons with Other Countries and International Norms 156 • Conclusion 156
6.3 The Budget Process and Social Expenditures 158
S. Mahendra Dev
 Contents xi

Shifts in Policies 158 • The Process 159 • Food Subsidy 160 • Expenditure Process 161 • Conclusion
163
6.4 Facts from Figures on Public Investment in Infrastructure 164
V.J. Ravishanker & Priya Mathur
Components and Measures of Public Investment 164 • Anomalies and Adjustments in State
Government Accounts 167 • Efficiency and Quality of Investment 169 • Conclusion 170
References 171

7. Taking Privatization Further 173

7.1 Putting ‘Private Finance’ back into the Private Finance Initiative 173
Jayanth Varma
Introduction 173 • PFI or Enronic Accounting? 173 • Private Finance and Private Management
176 • Financial Markets Play a Key Role 180
7.2 The Law and Private Finance Initiative: An Introduction 181
Alice George
Private Finance Initiative (PFI) 181 • Comprehending PFI 181 • Why PFI? 182 • PFI Contracts
182 • Criticism of PFI 183 • Conclusion 183
7.3 Financing and Restructuring of Infrastructure Projects: Impact of The Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 185
Piyush Joshi & R.V. Anuradha
Salient Features of the Ordinance 186 • Issues for Consideration 189 • Enforcement Under the
Ordinance 189 • Issues in Enforcement 191 • Impact on Infrastructure Financing 192 • Conclusion
192
7.4 Regulatory and Accounting Considerations for PFI Projects: the UK Experience 194
Samir K. Barua & Mahendra R. Gujarathi
Genesis of PFI 194 • Principles of PFI 195 • The Regulations 196 • Accounting Issues 197 •
Summary of the UK Experience 199
References 200

8. URBAN LOCAL BODIES 202

8.1 Succeeding in Municipal Accounting Reforms: The Gujarat, Tamil Nadu, and Karnataka
Experiments 202
Ravikant Joshi
The Gujarat Experiment 202 • The Tamil Nadu Experiment 204 • The Karnataka Experiment 206
8.2 Developing Municipal Bond Markets In India 212
Amit Sadhu & Sandeep R. Bharatwaj
Municipal Bond Issues in India 212 • Institutional and Governance Factors 213 • Market Factors
214 • Conclusion 215
8.3 The MMC and BEST Budgets 219
S. Sriraman & Utpal K. Mukhopadhyay
Existing Budgetary Processes—An Overview 219 • Budgetary Processes in the Brihan Mumbai
Electric Supply and Transport Undertaking 219 • The Budgetary Process in the Mumbai Municipal
Corporation 220
8.4 Finances of Urban Local Bodies in Maharashtra: A Statistical Profile 222
Abhay Pethe, Ajit Karnik & Dilip Karmarkar
xii Contents

Taxation and Levy Powers 222 • Expenditures of Municipal Corporations 224 • Income of
Municipal Corporations 228 • Expenditure of Muncipal Councils 230
References 234

9. RURAL INFRASTRUCTURE 236

9.1 Irrigation Subsidies 236
A. Vaidyanathan
Subsidies and Their Origin 236 • Improving Cost Recovery 239 • Prospects for Reform 242
9.2 People’s Participation for Efficient and Accountable Management of Irrigation Systems 243
Binayak Rath
Pani Panchayats 243 • Impact 245 • Emerging Challenges 246
9.3 Panchayati Raj Institutions and the State Finance Commissions—A Report 247
Mukesh P. Mathur
Panchayati Raj Institutions Today 248 • Finances of PRIs 248 • State Finance Commissions and
Their Recommendations 251 • The Eleventh Finance Commission 254 • Major Shortcomings 255
• Conclusions 256
9.4 The Rural Infrastructure Development Fund: A Review 260
Alice Albin Morris & Sebastian Morris
The Rural Infrastructure Development Fund 260 • A Commentary 261
References 268

10. THE SECTORS 268

10.1 Transition Plans for Power Sector Privatization: The Case of Delhi and Karnataka 269
Sidharth Sinha
Delhi Privatization: Bidding for AT&C Losses 270 • Karnataka: Distribution Margin Approach
274 • Distribution Margin Approach 275 • Conclusion 278
10.2 The Government’s Role in Road Toll Collection: The Coimbatore Bypass Experience 279
G. Raghuram & Deepa Kheskani
The Coimbatore Bypass Experience 279 • Issues Raised by the Coimbatore Bypass Experience 285
• Lessons 285
10.3 The Private Sector in Municipal Solid Waste Management: The Case of Poabs Green 286
Biju Varkkey
SWM Before the Project 287 • The Project 288 • Fact Finding Missions 291 • Project Risks and
the Stalemate 292 • Private Investment in SW: Learning from the Experience 293
10.4 Accountability and Change in the Indian Railways 295
G. Raghuram & Krishnan Venkataraman
Finances 295 • Summary 303
10.5 Privatization of Videsh Sanchar Nigam Limited 305
Rekha Jain • Krishnan Venkataraman
Sale to Strategic Partner 309 • Issues in Privatization 311 • Conclusion 312
References 313

STATISTICAL APPENDIX 314

 TABLES

2.1.1 The Primary Fiscal Deficit: An Accounting Exercise 45

3.1 Status of Power Reforms in States 77
4.3.1 Orissa: A Fiscal Summary 106
4.3.2 Orissa: Economic Composition of Expenditure i.e. by Economic/Object Head Classification 107
4.3.3 Orissa: Sectoral Composition of Capital Outlays 107
4.3.4 Andhra Pradesh: A Fiscal Summary 108
4.3.5 Andhra Pradesh: Economic Composition of Expenditure 108
4.3.6 Andhra Pradesh: Sectoral Composition of Capital Outlays 109
4.3.7 Orissa and Andhra Pradesh: Deviation of Final Accounts from Budget Estimates 110
5.1.1 Cost Overruns in Public Sector Projects 119
5.1.2 Time Overruns in Public Sector Projects 119
5.1.3 Reasons for Delays and Cost Overruns in Public-Sector Projects 120
5.1.4 Cost Overruns in Public-Sector Projects 121
5.1.5 Time Overrun in Public-Sector Projects 122
5.1.6 Regression Results of Unweighted Cost Overrun 123
5.1.7 Regression Results of Weighted Cost Overrun 123
5.1.8 ‘Incremental Gross Output by Gross Capital Ratios’ in the Economy 127
5.1.9 The Penalty on Growth Rates Due to Delays and Cost Overruns in Capital Formation 127
5.2.1 Targets and Achievements: Major Developmental Activities 129
5.2.2 DRF Contributions Required 131
5.3.1 Ministry of Urban Development and Poverty Alleviation and Its Divisions 133
6.1.1 Indicators of States’ Fiscal Stability and Budgetary Flexibility—All States 141
6.1.2 Gross Fiscal Deficit as a Ratio to Net State Domestic Product 141
6.1.3 Indicators of State Fiscal Stability and Budgetary Flexibility, State-wise 142
6.1.4 Financing of Gross Fiscal Deficit of States 143
6.1.5 State Government Guarantees 144
6.1.6 Centre-State Transfer of Resources in India 144
6.1.7 Composition of State Expenditures 148
6.2.1 Share of States in the Total Social Sector Expenditure of Centre and States 151
6.2.2 Social Sector Expenditure by Centre and States 152
6.2.3 Expenditure on Education and its Composition 1990–1 to 1998–9 153
6.2.4 Social-Sector Expenditure by Central Government 153
6.2.5 Percentage of Social-Sector in Central Plan Expenditure 154
6.2.6 Intra-sectoral Allocation in Education, Health and Rural Development 154
6.2.7 Social-Sector Expenditure of 25 States 155
6.2.8 Per capita Expenditure in Total Social Services 156
6.2.9 Composition of Public Expenditure in India and Developing Countries 156
6.2.10 Public Expenditure on Education and Health : International Comparisons 157
6.4.1 Alternative Measures of Public Investment 166
6.4.2 Gross Fixed Capital Formation in Public Sector by Industry of Use 166
6.4.3 Plan Investments in Central PSUs 167
xiv List of Tables

6.4.4 Net Non-PF Public Account 169

6.4.5 Portfolio of Investment Projects in Irrigation in UP 171
7.2.1 Risks and Their Allocation 183
8.4.1 Some Summary Statistics of Various Classes of ULBs 223
8.4.2 Rates of Property Tax in Muncipal Corporations of Maharashtra 223
8.4.3 Rates of Property Tax in Municipal Councils of Maharashtra 224
8.4.4 Distribution Of Dearness Allowance Grant 224
8.4.5 Grants to ULBs and Tax on Primary Education and Entertainment Tax 224
8.4.6 Some Items of Expenditure of 15 Municipal Corporations 225
8.4.7 Growth Rate of Certain Items of Expenditure 225
8.4.8 Income and Expenditure of Municipal Corporations in Maharashtra 226
8.4.9 Shares of Various Items of Expenditure in Municipal Corporations in Maharashtra 226
8.4.10 Per Capita Expenditures of Municipal Corporations on Various Heads 227
8.4.11 Share of ‘Income Items’ to all ‘Income’ of all 15 MCs 227
8.4.12 Growth Rates of Certain Items of ‘Income’ of 15 MCs 228
8.4.13 Share of Income of Municipal Corporation Groups 228
8.4.14 Share of Grants, Loans, Octroi and Own Sources in Total Revenues 229
8.4.15 Growth Rates of Grants Disbursed to Municipal Corporations 229
8.4.16 Devolution to Municipal Corporations in Maharashtra by the State 229
8.4.17 Growth Rates of ‘Income’ from Octroi of Municipal Corporation Groups 230
8.4.18 Property Tax In Municipal Corporations 230
8.4.19 Share of Expenditure on ‘EFC Core Services’ by Municipal Council Groups 231
8.4.20 Share of Certain Items of ‘Income’ to ‘All Income’ of Municipal Councils 232
9.1.1 Estimated Losses on Account of Major and Medium Irrigation and Multi-purpose River Valley Projects 238
9.1.2 Frequency Distribution of Irrigation Depth in Selected Projects/States 241
9.1.3 Illustrative Calculations of Increase in Collections for Full Cost Recovery 242
9.3.1 Panchayati Raj Institutions in India 249
9.2.2 Major Sources of Income for Panchayats in India 250
9.3.3 Sources of Revenues of PRIs, 1997–8 250
9.3.4 Dependency of PRIs on Higher Levels of Governments 251
9.3.5 Revenue Structure of Panchayati Raj 251
9.3.6 Trends in PRI Finances (in Rs) 252
9.3.7 Revenue and Expenditure of Panchayati Raj Institutions 252
9.3.8 Recommended Share in State Resource Pool: SFC Award 254
9.3.9 CFC Criteria for Distribution of Grants to PRIs and ULBs 255
9.4.1 Loan Disbursements Under the RIDF Tranches, and Deposits Received from Commercial Banks 261
9.4.2 A Summary of ‘Benefits’ and Effects of Irrigation, and Roads and Bridges Projects under RIDF 262
9.4.3 Completion Status of Projects 262
9.4.4 Average Project size 263
9.4.5 Purpose-Wise Sanction of Loans 263
9.4.6 Benefits Derived from Select Irrigation Projects Financed Under RIDF 265
9.4.7 Results of a Regression: Log (Sanctions) 266
9.4.8 Ratio of Observed Sanctions to Predicted Sanction, and Observed to Predicted Disbursals 267
10.1.1 AT&C Loss 272
10.1.2 Revenue Gap of Transco for Feb–Mar 2002 272
10.1.3 AT&C Loss Reduction Targets 273
10.2.1 Toll Rates as per the Concession Agreement 281
10.2.2 Profile of Usage of Athupalam Bridge by Different Types of Vehicles up to July 2000 282
10.2.3 Analysis of Toll Collections at Athupalam Bridge from December 1998 to July 2000 284
10.2.4 Profile of BOT Projects in the NHDP (31 July 2002) 286
10.4.1 Pattern of Financing Railways Plan Investment 295
10.4.2 Subsidy on Capital Investment 296
10.4.3 Borrowings through IRFC and lease payments to IRFC 296
10.4.4 Comparison of Dividend Rate with GoI’s Interest on Borrowings 296
10.4.5 Break up of Investment in 2002–3 297
10.4.6 Changing focus of IR in its Investment Decision 297
10.4.7 Distribution of PKM and Revenue Earned among the Different Classes 298
10.5.1 Share Capital History of VSNL 308
10.5.2 Stock Holding Pattern as of 31 March 2001 309
 BOXES AND FIGURES

BOXES
2.1.1 Structural Reform, Government Expenditure, and Macroeconomic Policy 35
2.1.2 Efficient Expenditure and Growth 37
2.1.3 The Burden of Programmes 38
2.1.4 The Fiscal Deficit 41
2.1.5 Employment and Administrative Expenses 43
2.1.6 Financial Sector Reform and the Fiscal Deficit 44
2.1.7 Some Observations on the ‘Report of the Expert Committee to Review the System of
Administered Interest Rates and Other Related Issues’ 46
2.2.1 Is Consensus Possible on Policy? 61
3.1 New Road Contracts in Madhya Pradesh and Andhra Pradesh 70
3.2 India’s Transport Sector: The Challenges Ahead 74
3.3 Privatization of DISTCOMS of DVB 76
3.4 ABC of AT&C Loss 78
4.1.1 Colombia: Ley de Semáforos or The Traffic Light Law 88
4.1.2 Market-Based Regulation of Sub-National Debt in Mexico 89
4.1.3 Fiscal Transparency and India 90
4.2.1 Expenditure Review Commission on the Department of Supply and Affiliated Offices 103
5.1.1 The Model 124
6.4.1 Off-budget Borrowing as a Means to Finance Investment in Infrastructure 165
6.4.2 Pending Bills and Transfers to Public Account in Kerala 170
6.4.3 Zero-Based Investment Review in Orissa 170
7.1.1 Network Rail (United Kingdom) 174
7.1.2 Italy’s Creative Financing Deals 174
7.1.3 Accounting for PFIs 175
7.1.4 UK Experience on Private Sector Incentives in PFIs 177
7.1.5 Railtrack Shareholders force Government Climbdown 177
7.1.6 Risk Sharing in UK Roads PFI 178
7.1.7 Risk Sharing in UK Prisons PFI 179
7.1.8 Fazakerley Prisons Refinancing 180
7.2.1 PFI in India 184
7.3.1 Case Study: Restructuring the Dabhol Power Project 192
8.1.1 Installing Accountability, Transparency and Efficiency in Urban Local Bodies 208
8.2.1 Municipal Bonds—The Policy 215
8.2.2 The Municipal Bond Market in the US 216
8.2.3 What Can Be Done? 217
9.2.1 The 1987 National Water Policy 244
9.2.2 Structure of the ‘Pani Panchayat’ 246
10.2.1 Report of the Expenditure Reform Commission on the Ministry of Road Transport and Highways 283
10.4.1 Free-Pass Scheme and Privilege Ticket Orders (PTOs) 301
xvi List of Boxes and Figures

10.4.2 Why Have a Separate Budget? 303

10.4.3 What Can Be Done? 304
10.5.1 VSNL 306

FIGURES
2.1.1 Index of Plan and Other Expenditure of the Central Government 31
2.1.2 Index of Economic Services and Other Expenditure of the Central Government 31
2.1.3 Index of Revenues and Other Central Government Expenditure 31
2.1.4 Ratio of Certain Items of Expenditure 31
2.1.5 Deficts of the Central Government and Interest Payments to GDP 32
2.1.6 Detrend of Log of GCF in Public and Private Sectors 32
2.1.7 Ratio of Real GCF to GDPFC 33
2.1.8 Share of Public Administration and Defence in GDP 33
2.1.9 Detrend of Log of Macro Aggregates 34
2.2.1 Revenue Deficit 55
3.1 National Highway Development Project of the NHAI 69
5.1.1 Effect on Growth Rates of Delays and Cost Overruns 124
5.1.2 Share of Public Sector in Gross Capital Formation 126
6.4.1 14 Major States: Fiscal Deficit & Adjusted Fiscal Deficit 168
10.2.1 Map Indicating the Location of the Coimbatore Bypass Project 280
10.4.1 Towards Improvement of Expenditure Accountability in the IR: A Scheme of Linked Actions 300
 ABBREVIATIONS AND ACRONYMS

AAY Antoyodaya Anna Yojana

AD aggregate disbursements
ADC Access Deficit Charges
ADR American Depository Receipts
AEZ Agriculture Export Zone
APDRP Accelerated Power Development and Reform Programme
AP Transco Transmission Corporation of Andhra Pradesh
ARR Accounting Rate Reforms
ARR Aggregate Revenue Requirement
ARV annual rental value
ARWSP Accelerated Rural Water Supply Programme
ASB Accounting Standards Board
ASE Ahmedabad Stock Exchange
AT&C Aggregate Technical & Commercial
ATF Aviation Turbine Fuel
AuWSP Accelerated Urban Water Supply Programme
BASIX Bharatiya Samrudhi Finance Limited
BATF Bangalore Agenda Task Force
BIS Bureau of Indian Standards
BMP Bangalore Mahanagar Palika
BOA Bus Owners’ Association
BPCL Bharat Petroleum Corporation Ltd.
bpkm billion passenger kilometres
BPMC Bombay Provincial Municipal Corporations (Act)
BSE Bombay (Brihanmumbai Stock Exchange)
BSES Bombay Suburban Electricity Supply (undertaking)
Btkm billion tonne kilometres
CAG Comptroller and Auditor General
CAA Constitutional Amendment Act
CACP Commission on Agricultural Costs and Prices
CADA Command Area Development Authority
CCA Chief Controller of Accounts
CCA Culturable (Cultivable) Command Area
CCEA Cabinet Committee on Economic Affairs
CCF City Challenge Fund
CCS Credit cum Subsidy Scheme
xviii Abbreviations and Acronyms

CDI Composite Development Index

CDMA Code Division Multiple Access
CET Central Energy Trader
COPU Committee on Public Sector undertakings
CRF Central Road Fund
CST Contract Structure Test
DCB Demand, Collection, Manage, and Finance
DERC Delhi Electricity Reform Commission
DGQA Directorate General of Quality Assurance
DGS&D Directorate General of Supplies and Disposal
DISTCOM Distribution Company
DLD Domestic Long Distance
DPEP District Primary Education Programme
DRF Depreciation Reserve Fund
DRT Debt Recovery Tribunal
EAS Employment Assurance Scheme
EDF Electricitie du France
EFC Expenditure Finance Committee
EITF Emerging Issues Task Force (of the FASB)
EIUS Environmental Improvement of Urban Slums
ERC Expenditure Reforms (Review) Commission
FAS Financial Accounting Standards Board
FBAS Fund-Based Accounting System
FCC Federal Communications Commission
FPSL Fazakerley Prison Services limited
FRN Floating Rate Notes
FRS Financial Reporting Standard (System)
GAAP Generally Accepted Accounting Principles
GASAB Government Accounting Standards Advising Board
GDR Global Depository Receipt
GRIDCO Grid Corporation of Orissa Limited
IAAS Indian Audit and Accounts Services
IADB International American Development Bank
IASC International Accounting Standards Committee
IAY Indira Awaas Yojana
IBP Indo-Burma Petroleum
IBRD International Bank for Reconstruction and Development
ICB International Competitive Bidding
IDA International Development Agency
IDBI Industrial Development Bank of India
IDSMT Integrated Development of Small and Medium Tours
INPS Instituto Nazionale per la Previdenza Sociale
INTACH Indian National Trust for Art and Cultural Heritage
IOC Indian Oil Corporation Limited
IOFS Indian Ordnance Factorian Services
IPO Initial Public Offering
IRCTC Indian Railways Catering and Tourism Corporation
IRDP Integrated Rural Development Programme
IRFC Indian Railways Finance Corporation
ITU International Telecommunications Union
IWDP Integrated Wastelands Development Programme
JGSY Jawahar Gram Samridhi Yojana
 Abbreviations and Acronyms xix

JNPT Jawaharlal Nehru Port Trust

KERC Karnataka Electricity Regulatory Commission
KPTCL Karnataka Power Transmission Corporation Limited
KRC Konkan Railway Corporation
KSEB Kerala State Electricity Board
KSFC Kerala Finance Commission
KSPL Kakinada Sea Port Limited
KUIDFC Karnataka Urban Infrastructure Development Finance Corporation
LMS Limited Mobility Services
LTTIL L&T Transportation Infrastructure Limited
MAV Multi-Axle Vehicles
MFAL Marginal Farmers’ and Agricultural Labourers’ Agency
MFDA Medium Farmers’ Development Agency
MMFAS Modern Municipal Financial Accounting System
MMRDA Mumbai Metropolitar Development Authority
MSRDC Maharashtra State Road Development Corporation
MTEF Medium Term Expenditure Framework
MTFP Medium Term Fiscal Plan
NAO National Audit Office
NATS National Air Traffic Services
NCDC National Cooperative Development Corporation
NCRB Non-Convertible Redeemable Bond
NCRCL NCR Consultants Limited
NCRPB National Capital Region Planning Board
NCT New Control Total
NDA National Democratic Alliance
NEF North Eastern Frontier
NFPS Non-Financial Public Sector
NHAI National Highways Authority of India
NHDP National Highways Development Project
NHPC National Hydro-electric Power Corporation
NIPFP National Institute of Public Finance and Policy
NIRD National Institute of Rural Development, Hyderabad
NSAP National Social Assistance Programme
NSDP National Slum Development Programme
NSE National Stock Exchange
NSHP National Housing and Habitat Policy
NSICT Nhava Sheva International Container Terminal
NSSF National Small Savings Fund
NTH National Test House
NTP National Telecom Policy
NWMP National Water Management Programme
OCS Overseas Communications Service
OECD Organization for Economic Cooperation and Development
OFPP Office of Federal Procurement Policy
PAC Public Affairs Centre
PAC Public Accounts Committee
PAD Project Appraisal Division (of the Planning Commission)
PBR Performance Based Regulation
PCB Pollution Control Board
PCR Project Completion Report
PEM Public Expenditure Management
xx Abbreviations and Acronyms

PES Programme Evaluation Studies

PFI Private Finance Initiative
PFT Private Finance Transaction
PIB Project Implementation Board
PIM Participatory Irrigation Management
P&O Peninsular and Oriental Ports
PRI Panchayati Raj Institution
PSC Public Sector Comparator
PSFC Punjab State Finance Commission
PTH Pilot Testing House
PTO Privilege Ticket Order
PTIC Public Telocom and Information Centre
PUK Partnership UK
QSPE Qualifying SPE
RBO River Basin Organization
RFFC Railway Freight and Fare Committee
RFP Request for Proposal
RFQ Request for Qualification
RIDF Rural Infrastructure Development Fund
RIO Reference Interconnect Offer
RITES Rail India Technical and Engineering, Services
ROB Rail Over Bridge
RORO Roll on roll off
RSS Rural Sanitation Scheme
RTC Regional Testing Centre
RVSAT Receive only very small Aperture Terminals
S&S Sites and Services
SAS Self-Assessment System
SAY Samagra Awaas Yojana
2 SB Two-Stage Budgeting
SDCA Short Distance Charging Area
SEPUP Self-Employment Programme for the Urban Poor
SEZ Special Economic Zone
SFAA State Financial Accountability Assessment
SFDA Small Farmers Development Agency
SJGSY Swarn Jayanti Gram Swarozgar Yojana
SJSRY Swarn Jayanti Shahari Rojgar Yojana
SOR States’ Own Revenues (Resources)
SPE Special Purpose Entity
SRA Strategic Rail Authority (of the UK)
SSAP Statement of Standard Accounting Practice
SSRF Special Safety Reserve Fund
T&D Transmission and Distribution
TAMP Tariff Authority for Major Ports
TCMC Tumkur City Municipal Council
TNUDF Tamil Nadu Urban Development Fund
TNUDP Tamil Nadu Urban Development Project
TNUIF Tamil Nadu Urban Infrastructure and Finance Services Limited
TRAI Telecom Regulatory Authority of India
TRANSCO Transmission Company
UBSP Urban Basic Services for the Poor
UCD Urban Community Development
 Abbreviations and Acronyms xxi

UMTS Urban Mass Transport Systems

UNCHS United Nations Centre for Human Settlements
USL Universal Service Levy
USO Universal Service Obligation
VOIP Voice Over Internet Protocol
VPT Village Public Telephone
VSNL Videsh Sanchar Nigam Limited
VVNL Visvesvaraya Vidyuth Nigam Limited
WALMI Water and Land Management Institute
WLL Wireless in Local Loop
WUA Water Users Associations
ZBI Zero-based Investment