RURAL INFRASTRUCTURE AND SERVICES

 

INTRODUCTION

The issue of the provision of rural infrastructure is particularly relevant for India which is predominantly rural. Further, as we see later, the findings of various empirical studies clearly indicate the positive impact that infrastructure development has on economic growth, poverty alleviation and human development. A related issue is the existing regulatory framework which is in need of reforms. Given the low per capita income of rural households, and hence their low affordability, there is a clear need for government intervention in taking suitable initiative for improving access to infrastructure services, with a view to eventually moving towards achieving the objectives of universal coverage.

This implies gradually improving physical proximity for all to the sources of infrastructure services. Thus, through universal access, the residents of every village should be able to access a common telephone. Each village should be able to connect to wired network/electricity grid, have access to a road and be close to a drinking water source. However, it may be noted that universal access does not necessarily imply universal service.

 

THE DEFICIENCY OF RURAL INFRASTRUCTURE IN INDIA

 

For any country, development of rural areas is a pre-requisite for the overall growth of the economy and it is particularly important for a developing country such as India, where 71%of its one billion plus population reside in the rural areas. The government had announced special schemes for development of rural infrastructure from time to time. However the implementation of these schemes has been generally very tardy. A major hindrance to rural development has been a lack of access to safe, reliable power, telecommunications, and water, sanitation and transport services.

 On the average 89 percent of rural households do not own telephones, 52 percent of households do not have domestic power connections. The average brownout in India is 3 hours in non-monsoon months and 17 hours in monsoon months; 20 percent of rural habitations have partial or no access to safe drinking water supply; 2 Km is the average distance from a village to an all weather road and 52 percent of people living in habitations away from the main village do not have access to all weather roads.

 

BENEFITS OF IMPROVED SANITATION

 

ü  Lower rates of death and sickness

ü  Savings in health costs

ü  Higher worker productivity

ü  Better learning capacities of school children

ü  Increased school attendance, especially by girls

ü  Strengthened tourism

ü  Heightened personal dignity and national pride

 

TARGETING OF RURAL INFRASTRUCTURE PROJECTS

 

Rural infrastructure projects lead to efficiency gains as well as social equity gains through reduction of poverty. Projects that provide a high rate of return might not have very many favourable implications for social equity or the reduction of poverty. On the other hand

Projects with lower rates of return may have more benefits in terms of social equity and the reduction of poverty. Therefore, selection of projects on the basis of efficiency alone may not

Necessarily is social welfare maximizing as they understate the importance of poverty reduction.

 

THE NEED FOR REFORM IN RURAL INFRASTRUCTURE

 

The study is carried out for the telecommunications industry. The econometric results show that Privatisation, competition and the introduction of an independent regulator lead to an increase in tile-density by 8 percent and an increase in labour productivity by 21 percent. The private ownership is likely to lead to greater internal efficiency for a variety of reasons, ranging from lower costs of monitoring, more precise and measurable targets and greater flexibility to devise incentive contracts. Many other studies have come out in favour of Privatisation.

There are several aspects of reform that need to be considered. These include:

 

Industry structure: structural reform which is primarily concerned with the introduction of competition into a sector or the removal of barriers to entry to new players so that contestability is a real option;

 

Operation: conduct reform whereby a natural monopoly is constrained by rules covering areas such as quality, pricing and access. The key to the successful implementation and enforcement of these rules is an effective regulatory system which ideally requires the establishment of an independent agency;

 

Ownership: reforms are often associated with a change in the ownership of previously state owned enterprises to some degree or form of private sector ownership.

 

Decentralization in allocation mechanisms: These often play an important role in enhancing the influence of economic forces and the participation of stakeholders in the infrastructure sector. This is generally true for the water sector.

 

Change in regulations: Regulations can often have an adverse impact on welfare.

 

THE DEVELOPMENT OF RURAL INFRASTRUCTURE IMPACT ON ECONOMY:

 

ü  Creating better access to employment and providing further earning opportunities.

ü  Increasing production efficiency.

ü   Creating access to previously inaccessible commodities and services.

ü   Time saving which can be better utilized in productive activities

ü   Better health and physical condition of the rural population.

 

The first and third channels correspond to better physical access facilitated by roads etc. The second channel is due to the improvements in technology and mechanization facilitated by the spread of electrification and telecommunication. The fourth channel corresponds to time saving from faster physical access to employment opportunities, goods and services and in creation of drinking water sources. The fifth channel results from the spread of quality sanitation and drinking water facilities.

 

THE EMERGING PRACTICE OF COMPETITION AMONG FIRMS FOR SUBSIDIES COMPRISES THE FOLLOWING MAIN STEPS:

 

• The government defines the broad objectives, target population, and levels of funding of the subsidy program. It also establishes key service conditions such as types of services to be provided, quality standards, maximum retail prices, and duration of service commitments.

 

• Specific service needs and choices are primarily identified by prospective beneficiaries and communities. Economic and technical analysis is used to select and prioritize projects that are likely to be desirable from the viewpoint of the economy at large but not commercially viable on their own, and to determine the maximum subsidy justified for each project.4

 

 

• Private firms submit competitive bids for these projects. Subject to meeting service conditions and complying with rules that apply to all providers, bidders are free to develop their business strategies including choice of technology.

 

• Subsidies are awarded to the bidders that require the lowest one-time subsidies. Alternatively, bids are invited for fixed subsidies and awarded against other quantifiable service measures, such as the lowest price to end users or the fastest rollout of service.

 

 

• Subsidies are paid in full or in instalments, linked to implementation of investments and start of service.

 

• Service providers own the facilities and bear all construction and commercial risks. No additional subsidies are available downstream for the same services.

 

 

• The government monitors and enforces service quality and pricing standards, protects users against arbitrary changes of service, and provides investors with stable rules of the game.

 

THE TELECOM SECTOR

 

The situation in the rural telecommunication sector is generally very encouraging. A technological change in the last decade such as the switch to wireless networks has meant that rural networks, which cover small low density agglomerations, are no longer less economical than urban networks. Second, remote areas can also be covered by the network because under the wireless technology distance is no longer a relevant factor unlike in the case of cabled networks. The adoption of wireless technologies will result in huge reduction in the number of telephone exchanges that would have been needed to service the entire rural territory of India. Thus, because of these technological changes a very rapid spread of telephony in rural India is possible.

 

TELECOM: THE CURRENT SCENARIO

 

• 90 % of village covered
• Low teledensity
• Highly subsidized
• Privatisation limited to cities
• Regressive subsidy scheme

 

It has been broadly assumed, based on experience and case study data, that rural users in developing countries collectively pay 1-1.5 percent of their gross community income for telecom services. If this is assumed for India then a rural household, which is in the richest 11 percent (of all rural households) and has an income of above $1 a day (at the current exchange rate), can afford to own a telephone at a monthly rental of Rs. 70. Cross country village-level data collected for this project indicates that only 11 percent of households own telephones and pay monthly rentals of around Rs 150. Around 10 percent of households who do not own telephones typically make only four to five calls a month, incurring an average expense of Rs. 200.

 

 

 

 

TELECOM IN RURAL AREA

 

Thus, it might be more effective and economical to provide mobile phones and PCO services to people through private vendors. Out of the ten states sampled only three states (Kerala, Punjab and West Bengal) have on the average more than one public telephone per village. This implies that there is scope to increase public telephones in other states. Again only West Bengal and Assam have more than one telephone for every two thousand people. Low affordability for ownership of private telephones is indicated by the fact that in only three states is the percentage of households that own telephone connections greater than 10% (Kerala, Punjab and Maharashtra). Only in three states (Punjab, Kerala and Assam) are telephones used by more than ten percent of the population. These states incidentally are known to have large number of their people working outside the state, thus requiring being in constant touch with their kith and kin. Hardly any initiatives either by the private sector or the community in rural telephony seems to have been taken in many states. Maharashtra, Punjab, Assam and Uttar Pradesh are however exceptions.

 

TELECOM: RECOMMENDATIONS

 

• Decentralised provision
• Matching technology with demand
• Using micro-finance to increase demand
• Public –private partnership
• Tying subsidies to socio-economic criteria

 

CONVERGENCE BETWEEN SERVICES

 

The volume of demand for any service in the rural areas may be too small and dependent on the efficient functioning of other sectors. In this scenario, multi-utility providers who can integrate different services will be more likely to have the capacity to raise funds.

 For example, a telephone franchisee with a switch, which also offers power and small transport services, would attract better private capital. Therefore, there is a case for multi utility providers.

POWER SECTOR

 

There is unanimity on the positive effect that increased access to electricity has on living standards and the levels of social and economic development. There are immense social benefits of having electrical connections at home for children's education and income generating activities for women. That good quality, regular power supply has a positive impact on agricultural productivity is consistently reported in several studies. The village economy is transformed by the availability of power through mechanisation and productivity increases. Post-harvest processing of agricultural commodities, drying and grinding, cold storage facilities and IT-based access to price and market information allows farmers to expand their markets.

 

POWER: THE CURRENT SCENARIO

 

• Around 50% of households connected
• High rate of power outages
• Private provision is rare
• High subsidy on power tariffs
• Inadequate government funds

 

POWER SITUATION IN RURAL AREAS

 

Universal availability of electricity in India is a distant dream. The national penetration rate (number of connected households per 100 households) i around 52. This average however tends to conceal considerable interregional variations. Thus while Punjab has a penetration rate of 99.87% in Orissa, it is as low as 17.82% (table 3.1). Those who have connections pay on average Rs. 136 a month for power.

 

 Domestic power is consumed mainly for lighting, a finding that is substantiated in the energy survey undertaken in 1994 by the NSSO which reported that 1.2 percent of rural consumer's gross energy needs were met through electricity and the need for domestic consumption was mainly for light-energy. The percentage of villages covered by a supply of electricity is around 82%.

ALTERNATIVE SOURCES OF RURAL POWER

 

Rural co-generation: The per unit cost of production is Rs 35,000 per megawatt. However, the production is available only for 8 to 9 month of the year if sugar bags is used. For the rest of the year fossil fuels like diesel or other sources have to be used.

 

Rural mini-hydro: The advantage here is that variable costs are zero. The cost of generation is the investment in building small dams (if required) and in capital equipment. The disadvantage is that to a large extent it depends on the monsoons. As the recovery of revenue from power generation improves over time, loans can be refinanced.

 

Rural biomass option. In this technology, input costs of generation are negligible as local biomass can be used, but this needs to be collected and processed. It also has very low operation and maintenance costs. Gestation time is around 18 months, but each plant generates volumes of power that are low, just enough to light up 2light bulbs and one fan each for 200 households.

 

Solar home lighting/ lanterns systems: In these technologies the capital cost is the main investment and varies from Rs 3,500 for a stand-alone system to Rs 25,000 for a home-lighting system.

 

NEW TECHNOLOGIES AND NEW STATUTORY PROVISIONS

 

Are there new technologies which are available for power supply that will provide the same quality of power at lower costs? There is no simple answer to this. There is a lot of variation in rural areas in terms of population density, resource supply, topography, and so on. This means that some technology will be more or less efficient in different areas.

The lowest cost of a service depends on the optimal density of usage, which is determined by the number of connections in a system. The operation and maintenance cost of mini-hydro or biomass technologies is much higher than solar or wind technologies which require near-zero maintenance for up to 20 years. Capital investments, however, are loaded up-front in these technologies. Finally, density will depend on how many people use the service, which in turn will depend on how often they 'fail' to get electricity.

 

ROADS AND TRANSPORT SECTOR

 

Developing country governments for decades, and even today, have been willing to undertake substantial capital investments that are not recovered through user charges for rural transport infrastructure (rural roads, tracks, trails, paths, footbridges, and sometimes waterways and airways) but have been reluctant to likewise subsidize the provision of transportation services using these infrastructures. This has been compounded by the separation between providing and maintaining the infrastructure  and owning and operating the vehicles (mostly by the private sector) that actually deliver the transport service.

 

IMPORTANCE OF RURAL ROADS

 

The development literature on rural roads indicates a positive relationship between good quality feeder roads and rural development, growth and rural incomes. One of the major

Benefits are access to markets, which increases employment and business opportunities, and encourages small-scale and cottage industry activities, roadside stalls, and shops in the villages. Good, well-designed rural roads have proper drainage and consequently produce a positive effect on the environment.

 

ROADS-CURRENT SCENARIO

 

• Around 40% of villages unconnected
•  Huge losses for state transport undertakings
• Main focus of road construction is employment generation and not quality
•  Poor maintenance by state governments
• Substantial rise in incomes and vehicle ownership, relatively small expansion of road stock.

 

SUGGESTIONS FOR A NEW APPROACH

 

Our investigations suggest a booming derived demand for quality rural roads. This is indicated by the rapid expansion of the rural middle class, the fast increasing rural demand for motorized vehicles and the large revenues earned by the rural transportation sector. Though the government has undertaken a moderate expansion of the rural road network, the roads are often not of good quality and often fall into disrepair because of inadequate maintenance by the state governments. The estimate for investment required for full coverage (original norms) is around Rs. 16000 crores whereas the highest annual budget allocation of the Central Government in the recent past is Rs.2500 crores.

 

DEVELOPMENT OF RURAL ROAD

 

The government has a limited budget for spending on rural roads in a given jurisdiction, say a district. Potential road projects can be ranked according to the economic benefits generated and the social equity weights. The social equity weight reflects the poverty in the community (set of habitations) affected by the rural road project. The greater the poverty the greater the social equity weight.

Thus, the desirability of a rural road project is given by It selects the project ranked 1 first for implementation and provides the village community a subsidy equal to the difference between the cost of maintaining the road and willingness to pay. If the latter is greater than the former then no subsidy is provided. The government then selects project 2 for implementation and provides a subsidy according to the same principle. In this manner it keeps selecting projects and providing subsidies till the entire budget is exhausted.

 

TRANSPORTATION ON RURAL AREAS

 

Transport services on rural roads include bus services on fixed routes and timetables, pick-ups and mini-buses offering flexible stopping points and times, trucks for hire, and informal transport (e.g. hitching rides, often for a fee). Rural transport services are provided by both public and private companies and individuals. Companies tend to operate medium size and large vehicles, which require significant investment and organizational support. Individuals tend to invest in minibuses, pickups, and intermediate means of transportation (including small tractors) (Starkey et al. 2002).

 There are also services brought to rural communities by vehicles operated by government and parastatal organizations, NGOs, and the private sector. They include delivery of farm inputs to local depots for collection by farmers, crop purchasing services, delivery of consumer goods, agricultural extension and community development services, and delivery of services and supplies to rural health and educational facilities

 

WATER SUPPLY

 

Potable water and, to a lesser extent, sanitation services, are often a priority for rural communities. Willingness to pay for improved services depends on the distance to, and quality of, existing sources of water and sanitation facilities, as well as the consumers' perceptions of the health threats of unimproved services. Solutions to improved water supplies in rural areas are almost always localized, the water supply (be it ground or surface water) and its treatment and distribution being provided in each community as a stand-alone system.

 

DRINKING WATER AND SANITATION: CURRENT SCENARIO

 

• High coverage of habitations with drinking water sources but problem villages keep cropping up
• High subsidy in sanitation but poor coverage; very low total outlay
• Average amount paid by households for drinking water is very low
• States unable to maintain protected drinking water Sources
• Inadequately developed private sector because of entry and price barriers

 

STATUS OF RURAL DRINKING WATER AND SANITATION

ECONOMIC BENEFITS AND COSTS OF DRINKING WATER AND SANITATION

 

The literature on rural drinking water indicates a positive relationship between a well performing distribution system and rural development, growth and poverty reduction. Well developed, safe rural drinking water and sanitation facilities improve the health of rural inhabitants, and consequently result in better utilisation of education facilities and access to employment opportunities. This, in turn, supports agricultural and rural development. The environment is also improved through better drainage.

A well-developed water distribution system requires large capital investments, but its long term benefits accrue only when supported by an effective system of maintenance which can prove expensive. At the same time, drinking water is seen as a merit-good and its supply is generally maintained regardless of the magnitude of cost recovery. The resultant impact is usually poor maintenance of the distribution system and its consequent deterioration. Such a situation, besides contributing to a reduction in the operative life of the distribution system, has also stifled the development of more efficient, low cost options for service delivery and denied users as consumers the opportunity to demand better services.

 

THE CURRENT SITUATION

 

The government has performed creditably in setting up drinking water sources all over the country. However, the number of problem villages often increases over time because of poor maintenance of assets. Panchayats in most states have not been able to collect user fees to finance Operation and Maintenance Expenditure (O & M). Moreover, the pump sets provided by the government often break down and facilities to repair them are inadequate. The power supply needed for operating the pump sets is often unreliable and of poor quality. The demand of the rural population for quality surface water has not been adequately met. Small private operators in the rural water sector face entry barriers. They also suffer price barriers as government water is mostly supplied free. Despite these obstacles, many informal providers exist in the rural water sector. Tariffs for informal services are set according to the volume of supply, irrespective of quality, and range from Rs 5-10 a bucket to Rs 1,200 for a tanker9.

 

The revenues generated by informal service providers indicate that there is a large, untapped potential market for rural domestic water supply. Availability of additional funds is likely to improve the quality of supply and produce a demand push for better maintenance of assets. Most localised water supply schemes can be launched with very small investments with the possibility of these being recovered within a short period of time. But as no formal water markets have developed for these projects, the number of private providers of water services is not adequate.

 

STRATEGY FOR TACKLING WATER QUALITY

 

ü  Treatment systems for the household or  Community

ü  Alternative problem free zones in  Groundwater

 

 

SECTOR REFORM PROGRAM FOR RURAL DRINKING WATER SUPPLY SECTOR: SALIENT FEATURES

 

v  Adoption of a demand-responsive and adaptable approach based on empowerment of villagers to ensure their full participation in the project through a decision making role in the choice of scheme design, control of finances and management arrangements.

 

v  Shifting role of Government from direct service delivery to that of planning, policy formulation, monitoring and evaluation and partial financial support.

 

v  Partial capital cost sharing either in cash or kind or both and 100% responsibility of O&M by users.

 

CONCLUSIONS

 

There is good potential for using competition among firms for rural service subsidies in lower-income countries and for a number of different rural infrastructure services. Compared with traditional public sector infrastructure funding, this mobilizes private investment, reduces government outlays to meet given policy objectives, promotes cost-effective solutions and the emergence of new entrepreneurs, and enhances transparency. The model, however, does not offer a means for rural services to outrun overall economic development.