A simple analysis of infrastructure project data before and after the RTI makes plain the benefits of transparency in the sector.
Infrastructure projects have high visibility and complex nature. They are characterized by assets with long lives, entail large investments, have monopoly characteristics, and contain long-duration contracts. They also create widespread societal impact. However, the very nature of infrastructure projects makes them vulnerable to corruption and mismanagement. Favouritism, fraud, cronyism, patronage, embezzlement of funds, state capture or cash bribes are all concepts commonly associated with the delivery of infrastructure services in many countries of the world, rich or poor. Such forms of corruption negatively affect the quality of services provided. They also endanger accountability.
Academics and civil society organizations have vociferously advocated that transparency brings in accountability and reduces corruption and can also play an important role in improving the efficiency levels of infrastructure.
Is this just academic mumbo jumbo or do we see the evidence?
Right to Information Act, 2005
To answer this question, we looked at the impact of the Right to Information Act (RTI) in the Infrastructure sector. Enactment of the RTI is without a doubt a watershed moment in the history of modern India. It replaced the Freedom of Information Act, 2002. Previously, dissemination of information in India was restricted by the Official Secrets Act, 1923. RTI was seen as an important milestone for bringing in transparency in governance. While this law predominantly applied only to the public sector projects to start with, at a later stage Public-Private Partnership (PPP) projects, which involved significant public sector involvement were also brought under the RTI Act.
Infrastructure Projects and RTI
Major infrastructure projects in India are procured through the traditional Engineering Procurement and Construction (EPC) contracts or through the PPP route. Infrastructure projects in the EPC format came under the ambit of RTI from the time of its enactment in 2005. Later in 2013, PPP projects were also included under the RTI. As per the RTI, all information related to the project is disclosed in the public domain. Information disclosed includes the process of selection of the private party, revenue collected, payments made to the private party, the purpose of making such payment, and so on. Such disclosures ought to have ensured transparency in the implementation of projects. But to what good would it have been, if there has been no tangible impact on the ground?
It has been about 15 years since the implementation of the RTI and is probably the right time to assess whether the increased transparency as a result of the RTI has had an impact on project performance.
Effect of Transparency on Project Performance
We decided to study the impact of RTI on road projects. With a total length of about 5.5 million km, the Indian roads sector is one of the largest in the world. The Indian roads sector accounts for the second-highest investment among all the infrastructure sector, next only to power. Of the total investment of ₹80,00,000 Crore between FY08-19 in infrastructure, roads accounted for 18%.
According to the recently released National Infrastructure Pipeline report, the expected investment in roads for the period FY20-25 is ₹19,63,943 crore. These are large numbers and thus attracted our attention.
Data on various road projects implemented in the last 20 years were obtained from the Integrated Database on Infrastructure Projects (IDIP) in India (www.idip.co.in). IDIP is a repository of an extensive and structured database on infrastructure projects in India. We collected data on a total of 906 highway projects for our analysis from IDIP. These contained both EPC and PPP projects. Of the total projects, 412 projects were implemented before the enactment of the RTI Act, and 494 were implemented after the enactment. Description of the data and findings are given in Table 1.
|Table 1: Comparison of performance of highway projects before and after RTI Implementation|
|Number of projects||399||30||13||464|
|Average project length (lane-km)||276||218||140||168|
|Average of the bid price for each project (₹ crore)||627.43||158.78||392.31||178.75|
|Average of actual cost incurred for each project (₹ crore)||776.06||165.55||629.04||213.63|
|Bid price per lane-km (₹ crore)||2.98||1.53||3.08||2.01|
|The actual unit cost incurred per lane-km (₹ crore)||3.62||1.63||4.91||2.25|
|Time allotted to construct per lane-km (days)||5.29||4.65||12.25||8.93|
|The actual time taken to construct per lane-km (days)||7.16||5.56||33.28||11.81|
|Cost overrun (%)||17.59||3.68||94.61||9.87|
|Time overrun (%)||32.50||-8.29||197.40||65.21|
*All monetary values are at 2017 price levels.
Our findings clearly indicate that RTI has heralded a significant change in project performance. Increase in transparency has not only resulted in lower project costs but also faster completion of the projects.
Since our objective is to understand the impact of higher transparency, our discussion of the results focuses only the impact of RTI. We do not compare the effectiveness of different procurement process, i.e., the comparison of PPP and EPC projects, though our data can very much facilitate that analysis as well.
Lets’ discuss some important results. Firstly, there was no significant difference in average project length before and after the implementation of RTI. However, the average project bid price has reduced by 75% for PPP projects and 54% for EPC projects.
Thus, improvement in transparency has been associated with significant reductions in project costs. Secondly, the positive correlation of transparency was also seen in unit costs and unit time. The actual unit cost reduced by 55% for PPP roads after RTI enactment. The corresponding figure for EPC roads was 54%. Thus, for both the PPP and EPC projects, the unit project costs reduced by more than half. In terms of unit time, the actual time taken per lane-km reduced by 22% and 64% for PPP and EPC projects respectively.
Thirdly, project overruns are a major cause of concern for infrastructure projects. We, therefore, studied cost and time overruns for road projects before and after RTI. Results are consistent with the trends seen for unit time and unit cost. Remarkably, cost overrun reduced by 79% and 90% for PPP and EPC projects respectively, following the implementation of RTI. Similarly, time overrun reduced by 125% and 67% for PPP and EPC projects after RTI. Our results indicate significant performance improvements with an increase in transparency.
How can this be explained?
The results could be attributed to one or more of the following: Transparency in procurement can lead to the selection of the most efficient contractor. Consequently, the construction risks are managed efficiently, leading to a reduction in time taken and project overruns. The reduction in overruns indicates better accuracy in estimation before the bidding process. Compliance of the public sector procurement guidelines, completeness of scope and design leads to more accurate estimation in the first go. Lack of transparency can possibly increase the chance of manipulation in scope and design for personal gain.
Our results make a convincing case for bringing in more transparency in the infrastructure sector. The Finance Minister ended 2019 by unveiling the National Infrastructure Pipeline that indicated an investment of ₹102 Lakh crore in infrastructure projects in the next five years. No doubt, such big numbers make attention-grabbing headlines. However, what is needed for India today is not just sensational headlines.
For a capital-constrained economy such as India, what matters is not just the bucks that go in infrastructure, but the bang that we get for the buck. Our infrastructure projects need to be implemented with efficiency and accountability. As our results indicate, sustaining and increasing the transparency levels can make a significant contribution to infrastructure development in our country. Transparency, not just in letter, but also in spirit.
Thillai Rajan A. is Professor, Department of Management Studies, IIT Madras, and M.I.Nayyer is a PhD Scholar, Department of Management Studies, IIT Madras