The powerful head of NITI Aayog, Amitabh Kant, made a series of puzzling remarks at a conclave organised by the trade association FICCI on July 26. What he said was symptomatic of a deep confusion within the Modi administration about the role of the State.

Kant argued the government was incapable of maintaining and operating infrastructure projects, and should hand over functioning of even schools and prisons to the private sector. He used Canada and Australia as examples of nations where the private sector produces quality social infrastructure.

The NITI Aayog CEO went on to suggest that the build-operate-transfer model should be reversed. Build-operate-transfer projects involve private investment in building infrastructure, which becomes public property after a given period of time during which the private entity recovers its money and then some. Kant appeared to suggest that public money be sunk into projects that would later be handed over to private firms.

Having washed the state’s hands of many of the things that are traditionally its domains, Kant proceeded to scold his audience. “Private sector has performed very badly,” he said, citing irrationally high bids in auctions for infrastructure projects and coal blocks. “Private sector in India is most irrational, insensitive I have seen.”

State’s successes

There’s a lot to unpack in these statements.

Let’s begin with Kant’s example of Australia and Canada. There’s no doubt that private companies have initiated many fine social projects in those countries, but the state remains an immeasurably larger contributor to public infrastructure. Schools, roads and railways, and systems related to sanitation, health care and criminal justice, are all run efficiently by central, state and local governments. While India has failed to set up anything as comprehensive, there are pockets of excellence that can serve as inspirations.

Take the case of public transport. As a teenager, I’d always feel thankful for the excellent BEST bus service in Bombay when I travelled to cities that only offered private buses, which were invariably less clean, more crowded and more expensive. Although BEST has lost its sheen over the years, other cities have picked up some of the slack. Over the last decade, Delhi has replaced many of its notoriously accident-prone privately operated bus services with a more comfortable fleet run by the state-owned Delhi Transport Corporation, even as the Delhi Metro has allowed middle-class commuters unprecedented mobility within the National Capital Region.

Despite these visible gains, far too many bureaucrats and politicians share Kant’s perspective and have given up on improving systems in the lazy belief that improvement is impossible.

Private party

I agree there’s room for private investment in most of the areas Kant discussed. The restriction of education in India to non-profits merely muddies the waters, absolving the state of its responsibilities while sham “not-for-profit” trusts mushroom. Allowing profit-oriented educational bodies to function freely will clarify the government’s obligation to create good schools for those who cannot afford a private education.

There are areas from which the state ought to withdraw entirely. The government has no cause to manufacture consumer goods, or run airlines and hotels. But a withdrawal from those areas ought to be coupled with a sharpened focus on providing the kind of infrastructure that the state is best equipped to build.

As far as the private sector goes, the government needs to internalise the fact that the flipside of profit is risk. If there’s going to be healthy private sector participation in the areas Kant outlines, we have to to accept the possibility that many of those private initiatives will fail. That’s the crux of the issue.

Over the years, India’s governments have made their peace with monetary gain. Though they are no longer averse to profit, they are acutely fearful of risk. In urging private investors to take on infrastructure projects, Kant assured his audience that “these projects are fully de-risked”. Well, if you offer risk-free investments, why are you surprised when firms over-bid and can’t be bothered with due diligence? The bidders know the government will bail them out if their investments go south.

An excellent example of this is in process right now. Remember the 2G scam? The then Compotroller and Auditor General Vinod Rai’s report about spectrum allocation precipitated the United Progressive Alliance’s death spiral. While I have no doubt that the 2G spectrum sale involved corruption and favouritism, the CAG’s calculations of “presumptive loss” were wildly over-stated, as future spectrum auctions proved. Nevertheless, the outlay on auctions was substantial. Telecom companies that purchased spectrum now find themselves burdened by massive debts, somewhere between Rs 4 lakh crore and Rs 7 lakh crore, depending on whom you ask.

Instead of turning the screws on the firms, the Modi government is set to lend a helping hand by easing the terms of repayment. The total benefit to the firms from interest adjustments and deferrals will be around Rs 75,000 crore according to one source. The bailout completely subverts the purpose of auctions and guarantees future over-bidding and under-delivery by private firms. In this light, Kant’s complaints about private sector misdeeds are akin to parents who constantly humour tantrums wondering how their kids came to be so badly behaved.

Rather than de-risking private investments, the state ought to let profit thrive along with all the risk profit entails. The government should concentrate instead on de-risking the lives of India’s citizens by investing in a safety net, hospitals, good roads, public transport, sanitation, and schools. Australia and Canada have managed it pretty well, there’s no reason why we can’t.