60 India Infrastructure Report 2002
4 THE CONSTITUTIONAL AND LEGAL
FRAMEWORK FOR GOVERNANCE
4.1 THE FRAMEWORK OF REGULATION
One of the earliest and possibly the most often cited basis
for government intervention in utility provision arises out
of the ‘natural monopoly’ problem. Additional reasons for
large-scale intervention in markets in less developed countries
(LDCs) have been cited as arising out of capital market
failures and, scale and scope economies. The traditional
analysis of the regulation problem as a natural monopoly
has tended to concentrate on price or quantity instruments,
with little concern about the institutions within which such
instruments are operationalized. An alternative perspective
can be gleaned from the so-called new institutional economics
literature on regulation. This literature exhorts us to be
sensitive to the fact that public utility provision is
characterized by long-term contracts, and therefore the
regulator can itself be viewed as an agency that balances the
interests of both the consumers and the providers of a
service over a long period of time. If perceived in this
manner, the regulation problem becomes tractable as an
exercise in institutional analysis. Given the fiat to regulate,
a regulator has to choose an appropriate instrument to
achieve a regulatory end. This section discusses this issue
and provides some examples of how the choice of such
instruments can affect certain public outcomes. For instance,
a strand of law and economics analysis offers insight into
whether rights should be protected by using ‘property’ or
‘liability’ rules.
The significance of instructional analysis in the study of
infrastructure is immediately obvious once it is realized that
many infrastructure projects involve the use of sunk capital,
implying the presence of considerable asset specificity. The
presence of such asset specificity makes public utility
provision subject to risk because the provider has to invest
T.C.A. Anant • Jaivir Singh
in specialized assets that cannot be re-deployed without
incurring substantial loss if the initial contract were to be
disturbed in some manner. In other words, the opportunity
cost of investment in many public utility endeavours is
much higher in best the alternative use, should the initial
transaction be prematurely terminated. This suggests that
the decision to invest in a public utility can be forestalled
on account of transaction cost considerations.
The notion of transaction cost is particularly useful where
transaction costs are perceived as the ex-ante costs of drafting,
negotiating, and safeguarding agreements and the ex-post
costs associated with continuing the transaction relationship
over a period of time in the face of changing circumstances.1
In the presence of substantial transaction costs, institutions
can be perceived as modes of organizing economic activity—
set up to overcome transaction costs. The institution of the
market cannot be expected to allocate resources in the
presence of the problems associated with the infrastructure
provision because standard contract doctrines constructed
to govern discrete transactions are not equipped to handle
the contractual complexity associated with these problems.
In addition to the problem of provision, it needs to be noted
that public utilities involve a large range of users, sometimes
almost as large as the voting population. This implies that
in addition to the concerns of contracting related transactions
costs, providers of public goods have also to worry about
the distribution of benefits and the valuation of benefits
and costs across different segments of the target population.
1 Willamson (1985) offers an instructive analogy by stating that
‘Transaction costs are the economic equivalent of friction in physical
systems’.
 The Constitutional and Legal Framework for Governance 61
Thus, in addition to resolving issues of contract formation
and adjudication, the provision of public utility services is
involved with issues of distribution, equity, and fairness.
Therefore, specialized structures of governance are required
to mitigate the problems associated with public utilities. It
has been suggested that regulation can provide such a
structure, where the regulator is seen as an agent who
devises, allocates, and administers a collective contract for
the provision of some natural monopoly output. This
effectively means, to use phrases coined by Goldberg, that
the regulator has to achieve a balance by protecting the
producer’s ‘right to serve’ against protecting the consumer’s
‘right to be served’ (Goldberg 1976).
Conceptualizing regulation in this manner places an
emphasis on mechanisms for maintaining, adjusting, and
terminating long term relationships and also raises questions
about the appropriate instruments one can use for effective
regulation. The discussion on instruments has often been
couched in terms of trade-offs between prices and quantities
(tariffs vs. quotas), command and control vs. market based
instruments as in the discussion of environmental issues,
and property rules or liability rules in the discussions of law
and economics. While an exhaustive discussion on the choice
of optimal instruments is beyond the scope of this paper,
the literature raises certain issues which have a bearing on
our concern with regulatory design. We turn below to some
of these issues.
INSTRUMENTS OF REGULATION
One line of inquiry has posed the regulation problem as the
choice between setting a price or quantity signal to achieve
a desired end. Another approach has asked whether one can
best protect property rights, and therefore regulate, by using
property rules or liability rules. Though both these strands
focus on different choices, the conceptual similarity in
delineating the problem is remarkable. In an idealized world
with ‘no transactions costs’ the choice of instrument, and
for that matter the nature of the regulator, is irrelevant.
Prices vs. Quantities
In the context of incomplete information, Weitzman (1974)
has explored the choice between quantitative restrictions
and price restrictions.2, 3 Suppressing all technical detail, it
is useful to spell out the main results. Under conditions of
incomplete information, quantity and price signals will
transmit central commands in very different ways and will
2 Quantitative restrictions take the form of quotas in trade and
capacity restrictions in production whereas price restrictions are
imposed through tariffs, taxes, and subsidies.
3 See also Ray and Sen (1992) and Ray and Sen (1994).
lead to different results. The question as to whether the
quantity mode or the price mode is superior depends on a
number of parameters, which include the shape of the
benefit profiles. Briefly, quantity instruments perform the
best when the benefit schedules are highly curved and the
worst when benefit schedules are linear. On the other hand,
price instruments perform the best when the benefit schedules
are linear and the worst when the benefit schedules are
highly curved. Thus, in the case of industrial pollutants, an
industrial ‘bad’ such as those manifesting a quick and short
horizon irreversible impact—for example poisonous gases—
are more amenable to quantitative restrictions, while others
which have a slow long term reversible impact may be better
addressed through price controls. The distribution of
technological knowhow across firms is another determinant.
When the distribution of technological possibilities is limited
with low variability, a price instrument has a high risk of
failure. On the other hand, when the variability in the
technological possibilities is large and a quantity rule
specifying technology or cost is used, there is bound to be
a considerable risk of ignoring a set of low cost technologies.
One can view some of the possible policy measures affecting
the telecom sector in this light and argue that the government
is best advised not to specify technology in this sector;
instead, it may be more appropriate to impose licence fees,
taxes, or subsidies and let firms choose technology.
Sometimes, in the presence of quantitative restrictions,
regulators design provisions to sell or transfer licenses. If the
sale or transfer of the licence does not change the nature,
location, or type of the good on which quantitative
restrictions have been placed, the key regulatory interest
associated with changes in ownership will be centred primarily
around anti-monopoly concerns. However, in certain cases
the transfer or sale of licences can lead to changes in the
nature or location of the good. In such cases, the impact
of the transfer of licence will depend on the distribution
of consumption patterns. For instance, the impact of allowing
a piece of the spectrum to be shifted from cellular telephony
to radio broadcasts will depend on the distribution of
consumers and their preferences. To take another example,
consider a case where the transfer or trade of licences leads
to differential impacts, depending on the location over which
the restricted good is spread. If one makes emission
restrictions tradable, the consequences of such an endeavour
will depend on the area of impact. If the emission under
consideration is the chemical mercury, which is not degraded
or diluted over a long period, the implication of tradability
can be quite disastrous, whereas tradable permits may
promote efficiency in the case of carbon dioxide emissions.
In the former case, the area of impact would be very local
and irreversible, while in the latter case the area of impact
would be regional, if not global, and the effects may as yet
be reversible.
62 India Infrastructure Report 2002
The crucial point that emerges from this discussion is
that in designing and implementing optimal regulatory
policy, the regulator has to assess distributions of costs and
preferences as well as their levels, the structure of the market,
and the nature and form of contracts between producers
and consumers.
Property Rules vs. Liability Rules
The state can use property rules under which property
rights are guaranteed against non-consensual infringements.
Alternatively, the state can use liability rules which discourage
misuse of resources by requiring offenders to pay victims
for the harm they suffer. The instruments that are used to
control pollution provide an example that illustrates the
distinction between these rules . Pollution can be controlled
through a property rule that imposes a tradable or non-
tradable4 injunction through appropriate standards on the
polluting firm. Alternatively, with a liability rule no standards
are set but the firm is liable for damages payable to victims
of pollution.
The pioneering essay on the issue, ‘The Problem of Social
Cost’ (Coase 1960), sets out the analysis of the choice across
different rules. In this essay, Coase analyzed situations where
the economic activity of an agent has unintended
consequences on another, that is, an externality is present.
Coase points out that if information is perfect and transaction
costs are non-existent it does not matter on whom the law
places legal liability or whether property or liability rules
are employed—a free bargain can always be worked out
with an end result that is characterized by an efficient
allocation of resources. The other equally significant point
made in this work is that the ‘real world’ is often characterized
by the presence of transaction costs, and if transaction costs
are admitted then efficiency is sensitive to who bears the
legal liability and what rules are used to protect property.
In later works, Calabresi and Melamed (1972) and Kaplow
and Shavell (1996) have extended the analysis of the choice
between property rules and liability rules.
In the presence of externalities and no possibilities of
bargaining, liability principles do better than property rules.
This is because, given that the harm and prevention costs
are the private knowledge of the victim and the injurer
respectively, liability rules induce flexibility since the injurer
will abate the harm as long as the prevention cost is less than
4 Strictly speaking the case of non-tradable rights do not fit into
the dual categorization of property and liability rules. Instead, they
belong to the set of rules associated with inalienability, where the
court determines who gets an entitlement and the value of the
entitlement, but forbids the sale of the entitlement. See Calabresi
and Melamed (1972). As we have noted earlier in the discussion of
quantitative restrictions, tradability itself depends on the distribution
of impact.
the average harm. Property rules on the other hand end up
using estimates of costs and harm, which lead to inflexible
permissions to pollute/abate with greater error in allocation
on the average.
Bargaining raises the prospect of reducing the disadvantage
faced by property rules as it creates the possibility that
parties can trade their rights in mutually beneficial ways.
However, in this case the crucial parameter relates to the
distribution of costs and harm. In general, the dominance
of the liability rule continues, though asymmetric or highly
skewed distributions of costs and harm can lead to a
preference for property rules.
The advantage of the liability rule is clearly related to the
ability to correctly assess average harm. If the system (legal,
administrative, and procedural) systematically underestimates
harm, then the liability principle can do much worse than
the property rule.
If the problem at hand is such that it involves idiosyncratic
valuation of the resource in question where the two parties
have different private valuation, then property rules dominate
over liability rules. Under a property rule, transfers take
place only if the valuation of the owner is less than the
valuation of potential takers, and that too through a
compensation acceptable to the owner. If liability rules were
used in such instances with compensation being based on
averages of values, more than optimal level of takings or
dispossession will take place.5
Thus, we see that whether we seek to promote effective
allocation of the right to use resources through property
rules or liability rules depends on the ability of the regulator
to assess cost and harm/benefit as well as their distribution
over the target population.
The above discussion has some important lessons for
regulation, since regulators face these choices endemically.
To illustrate, if a regulator is called on to make a decision
on how to allocate the frequency bandwidth, the regulating
agency can use the property rule route by first creating
rights in the spectrum, which in turn can be bought from
the right holder by future users. Alternatively, the agency
can opt for the liability principle and allow people to use
the spectrum in an unfettered way, and if their independent
action leads to harm or major restrictions/constraints on a
potentially expanding service, then the aggrieved party can
5 One should note that the acceptability of compensation is
critical to the result. If the compensation is decided by a third
party—court, executive branch, or Parliament—and it is not subject
to review, then we may find excessive dispossession. It could be
argued that one of the key problems in large infrastructure projects
where large populations are displaced is that idiosyncratic valuation
has been performed inadequately. This problem has been compounded
by the restricted and distorted nature of the land market, as pointed
out by Morris (2000).
 The Constitutional and Legal Framework for Governance 63
go to court to seek compensation under the law of torts.
To take another example, let us say an agency empowered
to regulate telecommunications has to ensure that demand
for telephone connections has to be met by a specified
period. The agency can fix prices and hope that suppliers
will meet the targeted demand or it can specify quantities
that suppliers must supply and thereby cover demand. The
optimal decision in all these cases depends on an assessment
of the distribution of technology, benefits, costs etc. as well
as on the ability of the regulator to assess technology and
benefits. In addition, the regulator will be required to
supervise the implementation of incomplete contracts under
imperfect information. Therefore, simply put, the specific
and contextual knowledge is paramount in sectors that are
characterized by rapidly changing technology, such as
telecom. Additionally, while these insights have been worked
out as choices of instruments, the nature of information to
be processed makes it imperative that the institutions that
choose the instruments of regulation, as well as operationalize
them, have the right design and governance.
GOVERNANCE STRUCTURES: LEGISLATURE,
EXECUTIVE, AND JUDICIARY
In all the cases discussed above, it can be discerned that in
choosing and implementing an efficient instrument the
regulator needs to process a variety of different information.
Such assessment includes the distribution of benefits and
costs from the public utility over the target population, the
nature of technology and its distribution over the producers,
and the structure and implementation of contracts between
producers, resource owners and final consumers. Thus, the
regulator must do on a smaller scale what the state is
expected to do in aggregate for all public policy. Thus, even
though it may not be openly apparent, the problems of
regulatory design mirror the concerns of constitutional
governance, albeit on a smaller scale. One can take a cue
from this and first try to articulate the kind of information
that each institution—the legislature, the executive, and the
judiciary—is equipped to process.
To make decisions that explicitly or implicitly affect the
distribution of resources, the legislature, in ideal terms, is
structured to capture the preferences of the voting
population. The executive, largely organized as a hierarchical
system, executes the will of the legislature. To implement
this, the executive processes data by drawing upon scientific,
epidemiological, and statistical study. The executive can be
seen as a hierarchical expert body that makes a number of
technical decisions in the face of incomplete information.
The judiciary resolves disputes keeping in mind procedural,
statutory, and constitutional limitations. Since judicial
decisions have to be perforce fair, judicial information is
gathered from contesting parties in accordance with the
stipulated rules of evidence and procedure. The adjudicating
authority sorts out conflicting evidence to come up with a
decision, where this decision is made under conditions of
asymmetric information.
The specialized information processing abilities of each
institution is starkly encapsulated in the doctrine of separation
of powers. The doctrine of separation of powers can be
viewed as a device that encourages transactional efficiency
by delegating tasks to institutions in accordance with their
ability to process unique categories of information. A heuristic
elucidation of this is possible by considering a problem that
surrounds the recent decision of the Supreme Court of
India requiring all commercial vehicles in Delhi to convert
to compressed natural gas (CNG) fuel to lower pollution
levels.6 However, this decision has not been without
controversy as it appears that mandatory conversion to
CNG by all vehicles is not necessarily the most efficient way
to bring down emission levels. Other options could have
been considered such as changing the composition of diesel
or eliminating fuel price distortions that flow from the
system of administered prices and so on. The decision on
the appropriate technology should have ideally been made
by the executive using a body of experts, which would be
in a position to take into account all relevant scientific and
statistical data, and such decisions need to be flexible to
changes in technology and external conditions. Since a
court is structured to make an assessment on competing
claims, where contesting parties provide relevant information,
it is difficult for the court to make such decisions or alter
them expeditiously. This case illustrates the point that if the
doctrine of separation of powers is violated by one of the
institutions breaching its bounds and taking on the task of
another, certain social costs will emerge because each
institution is built to best process only a certain category
of information. The importance of the doctrine of separation
of powers, among other things, lies in encouraging
transactional efficiency. Admittedly, the analysis of this case
is inherently far more complex because the Supreme Court
had to take recourse to such extreme action because of
endemic executive failure. A similar class of failure can be
seen in the widespread and persistent opposition to large
infrastructure projects. This opposition arises because the
legislature, for a variety of reasons of electoral failure, has
not succeeded in giving adequate voice and transparency to
the project effected people. In these cases, as well, there is
a tendency to turn to the courts for remedy.7 While it is
6 This refers to the interim orders dated 28 July 1998 and 22
September 1998 that have followed from Writ Petition (Civil) No.
13029/1985 put into the Suprme Court by M.C. Mehta. Also see
M.C. Mehta vs. Union of India (2000) 9 SCC 519.
7 The recent judicial intervention on the Narmada dam––Narmada
Bachao Andolan vs. Union of India (2000) 10 SCC 664––is a case
64 India Infrastructure Report 2002
difficult here to detail all the sources of pervasive executive
or legislative failure that characterize Indian governance, the
absence of adequate separation of powers in India can
contribute to an explanation of persistent executive failure.
To pursue this chain of thought in relation to the
regulation of infrastructure activity, it may be noted that
the doctrine of separation of powers impacts on regulation
of infrastructure at two levels. One, regulation is embedded
in the wider configuration of separation of powers that
characterize the governance structure of a country. Two, the
design of regulation itself requires a mix of decisions that
fall in the rubric of these different types of institutions.
A comparison between the role that the doctrine of
separation of powers plays in influencing the design of
regulation in the United States of America and in
parliamentary democracies provides some interesting insights.
In operational terms, the United States of America exhibits
the most unadulterated form of separation of powers. As is
well known, in the US the three bodies, namely the
legislature, the executive, and the judiciary, are distinct from
each other. They are elected8 by different constituencies and
for different terms of office. In terms of regulation, this can
be translated into thinking of the legislature (Congress) as
the law making principal that delegates the responsibility
of implementing the law to the executive (federal
bureaucracy) which acts as an agent (McCubbins, Noll, and
Weingast 1987). As is the case with all principal-agent
relationships, the answer to the question as to whether the
agent will work in the interest of the principal crucially
depends on the techniques employed by the principal to
monitor and control the agent. There appear to be two
techniques whereby the US Congress ensures reasonable
compliance by the bureaucracy. One, the Congress directly
monitors administrative activity using extensive accounting
procedures and has the power to cut out funding to non-
performing agencies. Secondly, rule making by the
administration is controlled by an administrative procedure
referred to as ‘notice and comment’ rule making. This
procedure requires that before rules are announced, the
contents of potential rules are described to the public in an
accessible language and the views of all interested parties are
solicited. In addition to this, the administrative procedure
guarantees interested parties the right to participate in the
administrative process, and therefore the rules can be subject
to judicial review before being formalized. While judicial
review can stall the speed with which rules can be
in point. In this case the court, in our opinion, quite correctly held
for the doctrine of separation of powers. The point is that the court
is simply not equipped to assess distributional impacts.
8 The lower levels of the judiciary are in fact locally elected. The
senior judiciary is appointed on the recommendation of the executive
and approval of the Senate.
implemented, this process controls both arbitrary action by
the executive and forestalls systemic capture of the executive.
Overall, the separation of powers as manifest in the United
States of America acts to ensure that the intention of the
legislature is put into operation in a transparent manner.
In contrast, the separation of powers is much weaker
under parliamentary democracies. Under this system, the
party or the coalition of parties that wins the maximum
number of seats in Parliament forms the government. This
government in turn controls the administration through a
hierarchical set of commands originating from the governing
cabinet. Though ostensibly Parliament is the law maker, it
is the cabinet that not only sets much of the agenda of law
making but also implements the law. This continuum
between the workings of Parliament and the government
tends to blur the distinction between the legislature and the
executive. Under parliamentary systems, the control of
bureaucrats is achieved through informal channels and is
therefore not transparent. Typically, in this system courts do
not play much of a role in monitoring administrative action,
and when approached, largely confine themselves to ensuring
that bureaucrats respect statutory guidelines.9 If perchance
statutory guidelines are vague, courts tend not to intervene.
In this system, if interest groups want to direct rule making,
this has to be done by influencing party politicians and civil
servants informally and not on the basis of legal guarantees.
Since this influence is not transparent, the discretion of
politicians/civil servants often determines as to which interest
group will prevail. The absence of clear separation of power
under parliamentary democracies tends to have an adverse
impact on regulation design because administrative
procedures lack transparency.
It is beyond the scope of the discussion here to enter
into a debate on whether India needs to restructure away
from a parliamentary form of governance. Instead, the
point that has to be realized is that since the doctrine of
separation of powers under parliamentary democracies
operates weakly, this implies that under parliamentary
systems regulatory agencies function in an atmosphere where
procedures are not inherently structured to be transparent.
This lack of transparency raises the onus on the regulatory
agency to implement devices to promote voice and equity
decisions.
9 For example the Supreme Court has held that ‘The executive,
in running the administration of the country, should not be cowed
down and should be allowed to have full confidence in its own
existence so that its decision-making process is not, in any way,
affected. . . . If they were constantly under the fear or threat of being
proceeded against in a court of law for even the slightest of lapse
or under constant fear of exemplary damages being awarded against
them, they will develop a defensive attitude which would not be in
the interest of administration.’ Common Cause, A Registered Society
vs. Union of India (1999) 6 SCC 667.
 The Constitutional and Legal Framework for Governance 65
The nature of the problem can be illustrated by invoking
the case of one of the centrepieces of regulation in post-
liberalization India––Telecom Regulatory Authority of India
(TRAI)10. In the face of radical technological changes in
telecommunications over the last 15 years, Indian policy
makers have been pressured into allowing private
participation into the sector. In this process, TRAI was set
up as a regulatory body, structured to perform both executive
and judicial functions.
Perusing through the Telecom Regulatory Authority of
India Act, it becomes evident that the Authority possesses
limited executive powers. In Chapter III of the Act, which
enumerates the powers and functions of the Authority,
Section 11(1)(a) lists the areas over which the Authority has
recommendatory powers. These include recommendations
on when new entrants should be invited, the terms and
conditions of licences, revocation of licences for non-
compliance of terms and conditions, and efficient
management of available spectrum. In addition to this, the
Authority is supposed to recommend measures to encourage
competition, efficiency, and technological change. In the
same breath, in Section 11(d) of the Act it is explicitly stated
that while the central government might seek
recommendations from the Authority, to quote from the
Act ‘the recommendations of the Authority specified in the
clause (a) of this sub-section shall not be binding upon the
central government’. In Section 11(b) the ‘functions’ of the
Authority are listed, which include ensuring that terms and
conditions of licences are complied with, technical co-
ordination across providers is maintained, quality of services
is controlled, and revenue sharing among providers is
monitored. Next, in Section 11(c), the Authority is given
fiat to levy fees and other charges which have been decided
as a part of the regulatory endeavour. From this description
of the powers and functions of the Authority, it is evident
that key decisions associated with entry, licensing, and
distribution of the spectrum frequency lie with the
government, while the TRAI maintains residual command
over co-ordinating certain practices. In this context, it is
ironical that the TRAI Act should state in clause 11(4) that
‘The Authority shall ensure transparency while exercising its
powers and discharging its functions’, while there is no
device to ensure that the decisions of the Central government
are transparent. It has been periodically pointed out that
notwithstanding the presence of TRAI, important decisions
on the telecom sector have originated from the Prime
Minister’s Office. (Jain 2001).
The TRAI, in its role as the Telecom Disputes Settlement
and Appellate Tribunal, also functions as a court that deals
with disputes that may arise between the licencor and
10 This structure has served as a model for a number of sub-
sequent regulatory institutions.
licencee, between service providers and groups of consumers.
In addition to this, the Tribunal can also hear appeals
against decisions made by the TRAI. The Act grants these
possibilities, as long as the dispute does not come under the
purview of either the Monopolies and Restrictive Trade
Practices (MRTP) Act, the Consumer Protection Act, or the
Indian Telegraph Act. This clearly implies that while the
Tribunal might contain some skirmishes, the solution to
substantial issues surrounding the mitigation of risk and the
guarantee of rights have to be worked out either in other
courts or in the labyrinths of the concerned Ministries.
It has now become standard practice in India when
constructing regulatory institutions to include a wing that
acts as a court. Ostensibly, this is a part of a general trend,
that is encouraged because the civil courts are so
overwhelmingly clogged that it is felt that special courts/
tribunals will speed up the required justice. Thus for example,
Sections 33(1) and (2) of the Gujarat Gas (Regulation of
Transmission, Supply and Distribution) Act 2001 seeks to
exclude jurisdiction of all civil courts from matters in this
area.11 This fragmentation of the court system might ‘speed
up’ some cases, but surely lead to inefficiencies that are
generated by ambiguous jurisdictions. The key problem
with such fragmentation is that it inhibits the development
of unified legal doctrines, for instance in the important area
of contract law.12 It has been suggested that even though
Britain follows a parliamentary scheme of governance, the
success of some of her endeavours to privatize infrastructure
activities can be attributed to a well developed system of
contract law (Spiller and Vogelsang 1996). A well developed
contract law, even in the presence of opaque administrative
action and absence of formal mechanisms to capture different
voices, can restrain regulatory discretion and provide private
investors with adequate assurances against opportunistic
behaviour. Keeping this kind of view in mind, the most
expeditious way of constructing good governance in India might
be to reform the legal system such that it upholds the basic
common law tradition of enforcing contracts.
11 There is a tendency in such legislation to seek to exclude the
jurisdiction of not only the lower courts but also that of the senior
judiciary as well. The Supreme Court in the L. Chandra Kumar case
((1997) 3 SCC 261) has stipulated the structure and role of
independent tribunals.
12 In this connection, it is useful to point out the approach
followed by the Report of the Advisory Group on Bankruptcy Law
(RBI 2001). The committee eschewed the temptation to set up an
independent tribunal and instead opted to recommend a special
bench of the high court to deal with these matters. To enhance
efficiency, it was suggested that this bench be equipped with its own
distinct procedural requirements, as well as a special executive arm
through the notion of a bankruptcy trustee. The trustee will bring
the necessary technical and managerial skill to implement an effective
restructuring or liquidation package.
66 India Infrastructure Report 2002
As is evident from the TRAI example, regulation of
infrastructure activity is problematic because governance
structures force the difficulties of over-and under-delegation
onto the regulatory process. The regulatory agency faces
under-delegation because it possesses only the weak power
of suggesting recommendations on key issues––new entrants,
licences, and distribution of the frequency spectrum.
Concomitantly, these central issues are also in the purview
of the executive branch of the government, which makes
these decisions in a non-transparent manner. The agency is
also burdened with simultaneous over-delegation in its
capacity as a judicial body. The system over-delegates by
breaking up the court system, and prevents unified principles
of contract from emerging. Further, there is a persistent
uneasiness in the air, since such delegation conflicts even
with the limited separation of powers guaranteed by the
Constitution and is open to judicial challenges.
4.2 HOW PUBLIC FEEDBACK AIDS PUBLIC ACCOUNTABILITY
THE DISABLING ENVIRONMENT OF PUBLIC
SERVICES
During 1996–7 central and state governments together spent
about Rs 3655 or 25 per cent of per capita income, on
providing public services (World Bank 1997); yet, most of
the available information on these services is generally limited
to expenditures incurred and gross measures of outcomes
such as literacy, production, and other physical indicators.
Beyond this information, from formal sources we know little
about the quality of services provided by the state. And
whatever little is known paints a disturbing picture. To
quote some figures, 60 per cent of families in India do not
have electricity at home; 40 per cent of Indians do not have
access to water at home; 53 per cent of children in India
suffer from malnutrition; 84 per cent of the population have
no access to sanitation, and 58 per cent of primary schools
have no safe drinking water (India Today 2000). And even
where these facilities exist, their quality could be very poor.
Most people hold government responsible for this dismal
state of public services. The utter callousness and lack of
accountability rampant in many public offices raises the
question: why are leaders in government unable to cleanse
the system? Indeed, there are many things that a government
can and should do to improve matters. But for a variety of
reasons discussed below, government service providers
continue to be unresponsive to, and often uninterested in,
the needs and problems of the public.
If indeed the governance structure can be described in
this manner, this has had a negative consequence on the
ability of a liberalized economy to deliver in India. It can
be concluded that at least three changes in orientation are
required to usher in effective regulation. First, it is essential
that the regulator either directly or indirectly provides for
effective voice and equity in its decision making processes.
Two, it is also important that the regulatory process provide
for adequate protection of rights through a transparent
process of judicial review. Finally, it is imperative to
encompass an efficient process for executive decision-
making through a set of incentive compatible hierarchies.
To do this correctly will require us to be sensitive to the
delegation of powers under the Constitution and seek to
rectify institutional failures in the basic constitutional
institutions through a promotion of transparency and
voice.
Samuel Paul • Gopakumar K.
The Context of Public Service Delivery13
The state in India has traditionally been dominant in the
area of public services, and is often its sole provider. The
downside of this ‘monopoly power’ is that users of most
public services do not have the option to ‘exit’ from the
government supplier to another supplier. It also creates a
pronounced tendency on the part of the service providers
to withhold information from the customers and users,
thereby making it difficult for them to demand account-
ability.
Secondly, the absence of market competition has not
been compensated for by any other institutional mechanism
to ensure efficient service delivery. Traditional mechanisms,
such as public audit of government expenditure and legislative
oversight, focus only on a review of inputs. Expenditures
are audited to see whether proper procedures and norms
have been adhered to. While this is an aspect of accountability,
it does not tell us anything about how well the money was
spent. This is because very little attention is (or can be)
given to the outputs and outcomes of the inputs. The
problem is exacerbated by the difficulties in measuring
outputs and in monitoring field level activities. Legislative
oversight gets blunted by the vastness of the scope of services
and the lack of information available to the legislators. More
13 This section draws upon ideas articulated in a forthcoming
book by Samuel Paul, Holding the State to Account: Report Cards for
Responsive Governance.
 The Constitutional and Legal Framework for Governance 67
disturbing is the collusion between service providers and
those responsible for monitoring their performance. The
internal working and decision making of public agencies
cannot easily be monitored or even observed by those outside
the system. The scope for the pursuit of parochial and self-
serving interests and for corruption is considerable.
Thirdly, citizens are seldom able to engage in sustained
collective action to demand increased public accountability.
There is an implicit assumption that once people elect a
government, it is for the latter to enforce accountability on
all service providers. Perhaps, an even more important reason
for this attitude of citizens is that their motivation to engage
in collective action is usually weak. The fact that the severity
of problems concerning public services that people face
generally tends to vary from day to day and from household
to household implies that sustaining collective action is
difficult, even when a group is able to initiate action at some
point in time. Moreover, some people may not invest time
and energy for collective action, as they feel they could get
a ‘free ride’ from the success of the efforts of others in any
case. This is a major reason why the incentives for collective
action are weak, except in certain critical situations. This
is a general problem with collective action.
Fourthly, the legal framework of the country can be a
barrier to improved public accountability. Administrators
typically try to work within the framework of the laws and
regulations of their organizations. Accounts get audited
because a law requires them to do so. Investments are made
according to the laws and regulations governing the
organization. If the law is silent on the standards and other
attributes of services, as it is in India, provider agencies are
likely to pay less attention to them.14
Why are improvements in public service and ensuring
accountability to consumers and citizens not priorities of
those in power, despite the latter’s claims to the contrary?
A good place to start is with the planning function in the
government of India. These are the focal points for where
the objectives of development, and resource allocation and
management, are articulated and decided. However, the real
problem is that the planners’ influence, if any, is only on
investments, and not necessarily on outputs. The government
has typically seen its task to lie in mobilizing resources for
investment. Rakesh Mohan (2000) has summed up the
situation well: ‘The existing planning system has essentially
resulted in the central government acting as a giant financial
intermediary, borrowing from the public in different ways
to finance plan expenditure at both the central and state
levels. In this system there is no connection between the
viability of projects and their financing costs. The
consequence has been that returns from these investments
have been consistently low’.
14 In the United States and the United Kingdom, the law itself
lays down the standards for electricity supply.
A Way Out of the Impasse?
Could the market have done a better job of producing and
delivering public services than the state? Champions of
privatization will certainly answer this question in the
affirmative. After all, privatization has worked well in many
developing and developed countries. However, privatization
does not mean that government has nothing to do with
these services. It will be necessary for government and its
specialized regulatory agencies to specify the standards and
conditions of the services, regulate tariffs and related financial
matters, and monitor the service providers’ performance. As
India undergoes privatization, if functions such as standard
setting, pricing, and supervision are not well-designed by
the state, ‘reforms’ may result in the creation of a new set
of private sector monopolies whose performance is even
worse than that of the public sector. With the right kind
of initiatives from the government, however, the scope for
improvement is large.
More importantly, some services would necessarily have
to be provided by the state—law and order, for example.
Similarly, basic education, preventive health, maintenance
of certain common facilities, pollution control, etc. are not
tasks that can be left wholly to market forces. At a minimum,
the government has to play a regulatory role and monitor
standards in these services. Getting the government to deliver
these services more responsively to the people will be a
continuing challenge in any society.
While the role of the market has been discussed a great
deal, that of civil society as a force for ensuring better
services has received little attention. Civil society institutions
have played an important role in mobilizing public opinion
in the reform, the state, and its institutions in ex-Soviet
countries, South Africa, and Eastern Europe. Civil society
here refers not only to formal entities like the media or
professional associations, but also to the informal networks
of people from different walks of life. Powerful movements
involving civil society have surfaced in response to major
crises of governance in several countries. The ‘people power’
revolutions of the Philippines that led to the overthrow of
two corrupt presidents are an inspiring example. Similar
civil society movements in Indonesia and Iran also achieved
significant results.
Organized sections of society such as labour and industry
associations have always exerted pressure for or against
major policies. But on the issue of public services there
is no natural organization of citizens. They are after all the
primary stakeholders. Yet it is citizens and their groups
who can and should have exercised the pressure on
government. But their ‘voice’ is seldom well-orchestrated
or heard. Occasional protests in times of crisis are usually
not sustained.
68 India Infrastructure Report 2002
One promising approach is for the public to give their
assessment of services to the public agencies concerned and
act as watchdogs in the process. Campaigns and dialogues
would be more purposive and meaningful when people are
armed with information that is well focused and pertinent
to a given situation. Civil society institutions can potentially
play an active role in assembling and using such information
to stimulate public agencies to improve their services, and
also in drawing people together.
EXPLORING THE POTENCY OF ‘VOICE’ THROUGH
REPORT CARDS
What are the practical ways to use ‘voice and participation’
to change the highly disabling ambience of public service
delivery? (Paul 1998) When competition is absent, as in the
case of most public goods, popular voice can reduce
information asymmetries, which can challenge service
providers to perform better and lower transaction costs (Paul
1995a). When low incentives and weak monitoring combine
to produce inefficient public services, voice mechanisms can
inform public officials of the problems and act as a kind of
pressure for improvements (Dreze and Sen 1999).
Report Cards on Public Utilities, pioneered by Public
Affairs Centre (PAC)—a non-profit society based in
Bangalore, India— is now widely recognized as a powerful
voice mechanism. It builds on the notion that feedback has
a value to both the actor and the affected. ‘Report Cards’
provide a simple and widely replicable tool for improving
transparency and public accountability. Report Cards
compiled from citizens’ responses to structured queries can
objectively assess both qualitative and quantitative dimensions
of various public services. This Report Card can be used to
stimulate collective action by citizens and provide leaders
with an opportunity to design reforms and bring in a strategic
reorientation (Paul 1998). Experiences with Report Cards,
both national and international, have amply demonstrated
their potential for demanding more public accountability
and providing a credible database to facilitate proactive civil
society responses.
What are Report Cards?
The Report Card methodology presents a simple but highly
flexible approach for organizing public feedback (Gopakumar
1997). This methodology can be used to:
• Generate citizen feedback on the degree of satisfaction
with the services provided.
• Catalyze citizens to adopt proactive stances by
demanding more accountability, accessibility, and
responsiveness from the service providers.
• Serve as a diagnostic tool for service providers, external
consultants, and analysts/researchers to facilitate effective
prognosis and therapy.
• Encourage public agencies to adopt and promote
citizen friendly practices, design performance standards,
and facilitate transparency in operations.
Stages in a Report Card Survey15
• Identifying issues through focus group discussions.
• Designing the instruments of survey.
• Identifying the sample for the survey.
• Conducting the survey by an independent agency.
• Collecting qualitative data.
• Placing the results in the public domain.
• Conducting advocacy and establishing partnerships.
PAC’s Report Cards were first applied in the urban services
sector. But the approach is equally relevant in many other
infrastructure sectors.
EVALUATING AND BENCHMARKING CIVIL SERVICES
IN BANGALORE
The First Report Card Study of public services in Bangalore
(1993) involved a random sample survey of city households
(Paul 1995b). The residential areas of the city were stratified
by the age of the locality, and six areas were picked at
random from among the old and established, the new, and
the intermediate areas. Within each area, sample households
were selected, using random numbers. Care was taken to
include households across income groups. Samples were
sufficiently large to give reliable results. Questionnaires were
administered to the selected households, provided they had
an interaction with one or more public agencies in the
preceding six months.
The survey attempts to cover three key questions. How
much does it cost the user to avail the services? What are
the costs borne by a non-user in having to do without it?
What is the level of satisfaction with specific dimensions/
features of the service?
A seven-point scale suitably validated is used to score the
degree of satisfaction.
Poor Scores of Public Services
The overall satisfaction with public agencies (general
households) is shown in Table 4.2.1 in which, ‘satisfied’
refers to a rating of six and seven and ‘dissatisfied’ refers to
one and two. In between is a ‘zone of ambivalence’, which
indicates that the respondent is not clear on his/her
preferences. The table shows that none of the eight service
15 See Upp (1995).
 The Constitutional and Legal Framework for Governance 69

Table 4.2.1
Overall Satisfaction with Public Agencies in Bangalore (General Households), 1993
Agency/Service Average rating Percentage of Percentage of
users satisfied users dissatisfied

Telephones 3.6 9 28
Municipal Corporation 2.9 5 49
Electricity 3.5 6 31
Water 3.0 4 46
Health 4.3 25 19
Regional Transport Office 3.5 1 36
Development Authority 2.5 1 65
Public sector Banks 4.0 20 26
(*Higher is better)

providers in Bangalore receives a satisfactory score from the
respondents. Even the best average scores indicated (hospitals,
4.3; banks, 4.0) do not go beyond the zone of ambivalence,
that is, 3.0–5.0. Second, only one out of 100 respondents
in Bangalore considers the Bangalore Development Agency’s
(BDA) services as satisfactory. Only four, five, and six persons
out of 100 think that Bangalore Water and Sewerage Services
Board (BWSSB), Bangalore Metropolitan Corporation
(BMC), and Karnataka Electricity Board (KEB), respectively,
are performing satisfactorily.
The study also highlighted the phenomenon of corruption
(see Table 4.2.2). Taking all transactions with all eight
services, 14 per cent of the respondents in Bangalore paid
speed money (a euphemism for bribes) to the staff, either
directly or through agents. There is evidence of a higher
concentration of speed money in some agencies than in
others. Thus, every third person dealing with the BDA and
Regional Transport Office (RTO) and every fourth person
dealing with the BMC paid bribes. Respondents also reported
that in 50 per cent of the cases, officials demanded bribes,
thereby emphasizing the extortionary nature of corruption.
The findings of the study elicited wide interest. A leading
daily, the Times of India, started a weekly feature with a
graphic depiction of each one of the findings over a period.
The feature continued for about two months, bringing the
concept of Report Cards to the public attention. Though
the responses from most agency heads and senior government
officials were lukewarm, the BDA, which was rated the
worst across all qualitative and quantitative dimensions of
service delivery, responded with a request for a follow-up
survey. This resulted in a unique collaboration wherein a
public service agency requested an external research group
to provide assistance in getting feedback on various
dimensions of service delivery.
The second study sought to address some pertinent
questions. Are the customers of BDA satisfied with the
quality of service? Is the phenomenon of corruption as
rampant as was brought out by the first Report Card? What
are the perceptible areas of weakness in the functioning of
the BDA? Would the public be willing to participate in the
process of improving the BDA’s services? To better
understand the situation, the functional constraints
experienced by the officials of BDA were also assessed
through interactive discussions. Following the study, a series
of training programmes were organized for the staff of the
BDA.

Table 4.2.2
Bribes Paid to Various Agencies in Bangalore, 1993
Agency/Service Proportion in sample claiming Average payment
to have paid a bribe (per cent) per transaction (Rs)

Electricity Board 11 206

Water Board 12 275
City Corporation 21 656
Hospitals 17 396
Regional Transport Office 33 648
Telephones 4 110
Development Authority 33 1850
Average 14 857
70 India Infrastructure Report 2002

Table 4.2.3
Satisfaction of Users in Interactions with Public Agencies/Service Providers in Bangalore
Service Per cent satisfied Per cent dissatisfied
1994 1999 1994 1999

Bangalore Water Supply and Sewerage Board 4 10 46 31

Karnataka Electricity Board 6 13 31 38
Municipal Corporation 5 25 49 26
Bangalore Telephones 9 30 28 11
Regional Transport Office 14 18 36 26
Public Hospitals 25 30 19 11
Bangalore Development Authority 1 8 65 47

The most important gain of the survey and the
intervention that followed was the public awareness created
by the Report Card on the need for active citizen participation
in order to improve the quality of civic services. At the time
the Report Card was undertaken, very few active residents’
groups existed in Bangalore. Today, there are over one
hundred such groups who are networked with shared
activities among them (Paul 1998: p 14).
Apart from bringing out the levels of satisfaction or
dissatisfaction with the services, other aspects like staff
behaviour, incidence of problems and resolution were covered.
Most importantly, the study ‘measured’ something as abstract
as ‘corruption’. The additional problems of the urban poor
could also be brought out.
After a gap of more than five years, a second Report Card
on the public services of Bangalore was prepared by PAC
in 1999 (Paul and Sekhar 1999). The main objective of this
exercise was to assess whether the services had improved or
worsened over this period and in what respects. Table 4.2.3
brings out the changes over the five years. Table 4.2.4
similarly brings out the aspect of bribery in the two years
of the surveys.
Table 4.2.3 shows that during the five-year period,
satisfaction has increased across the board. The BDA and
the RTO though are perhaps the two exceptions where there
has been little change. Table 4.2.4 brings to light some
intriguing findings. Alongside an increase in satisfaction,
there has been a concomitant rise in incidences of corruption
in all agencies, with the exception of the BWSSB, Karnataka
Power Transmission Corporation Ltd. or KPTCL, and the
BDA. Even more disheartening is the fact that the average
amount paid as bribes has gone up dramatically (significantly
more than the consumer price index) in four out of 10
agencies.
DEVELOPING WARD BASED INDICATORS IN
MUMBAI
Mumbai is estimated to have a population of about 13
million, of which about 5.5 million live in slums. To assess
the spread and impact of critical public services in the slum
areas, PAC in collaboration with the Rationing Kruti Samiti
(RKS)—an umbrella organization of 38 non-governmental
organizations (NGOs) and grassroot organizations in
Mumbai—organized a Report Card Study in 1998
(Balakrishnan and Sekhar 1998). The study probed two
pertinent themes: (1) The overall availability, usage, and
satisfaction/dissatisfaction with public services; (2) In-depth

Table 4.2.4
Bribes Paid to Various Agencies in Bangalore, 1994 and 1999
Agency Proportion in sample claiming Average payment per
to have paid a bribe (per cent) transaction in (Rs)
1994 1999 1994 1999

Bangalore Water Supply and Sewerage Board 12 35 275 584

Karnataka Electricity Board 11 18 206 929
Municipal Corporation 21 52 656 3759
Telephones 4 26 110 245
Regional Transport Office 33 57 648 637
Public Hospitals 17 43 396 500
Bangalore Development Authority 33 78 1850 7690
 The Constitutional and Legal Framework for Governance 71

Table 4.2.5
Availability, Usage and Satisfaction with Public Services in Mumbai, (per cent), 1998
Public Services Availability Usage Satisfied Dissatisfied

Public Toilets 92 92 21 73
Drinking Water 97 97 59 38
Garbage Clearance 85 84 50 37
Domestic Lighting 97 97 86 10
Ration Shops 99 97 32 66
High School 98 96 91 05
Health Services 96 96 92 08
Note: Numbers are percent of surveyed.

study of problems with services where high levels of
dissatisfaction was experienced, with a view to overcome
these. The salient findings are summarized in Tables 4.2.5
and 4.2.6. Contrary to popular belief, the problem here is
not generally inadequate availability of services. Table 4.2.5
shows that civic facilities are available and much used. What
matters are the other factors brought out in Table 4.2.6.
Based on the findings generated by the study, a one-day
workshop on Developing Partnerships for Action towards
a Better Mumbai was organized by PAC and RKS with over
60 participants, including concerned officials from the
Municipal Corporation of Greater Mumbai, the Department
of Civil Supplies and the Police, representatives of NGOs
and community-based organizations or CBOs, and the Press.
A major achievement of this meeting was the interest
expressed by local government authorities to explore the
possibility of citizen–state interactive forums to address local
governance issues. The meeting also suggested that on a
pilot scale, intervention ought to be planned immediately
in a selected ward to improve the interface between local
officials and citizens groups for better management of the
ward. Accordingly, a project called Watch Your Ward Program
(WARP) was initiated in 10 wards in Mumbai. Voluntary
associations in these wards carried out the survey and the
process of drawing up the results is on. A local NGO,
Apnalaya, was involved in this programme.
BUSINESS ENVIRONMENT IN KARNATAKA
According to the government of Karnataka, 104 large-scale
industrial investment proposals worth a total of over Rs.
68,000 crores and 1014 medium-scale projects with a
proposed investment of Rs. 9600 crores have come to the
state during the eight-year period 1991–8. However, an

Table 4.2.6
Reasons for Dissatisfaction among Urban Poor in Mumbai with regard to Certain Services, 1998
Agency/Service Reasons for dissatisfaction (per cent of Urban Poor)

Ration Shops • Poor quality of service (82 per cent)

• Insufficiency of allotted quantity (95 per cent)
• Poor quality of the product (92 per cent)
• Long waiting time (average of 3 hours per visit)
• Non availability of required commodities (88 per cent)
Drinking Water • Distance to the tap (average of 70 meters)
• Inadequate quantity (82 per cent)
• Waiting time was almost 2 hrs on average
• Frequent failure of water supply (65 per cent)
• Bad quality of water (33 per cent)
Public Toilets • Lack of water in toilets (11 per cent reported water available!)
• Long wait in queues
• Long distance to toilets (average distance is 100 meters)
• Needed alternative arrangements (56 per cent of the time)
Garbage Clearance • Distance to the disposal spot (average of 50 meters)
• Inadequacy space for garbage disposal (90 per cent of responses)
• Irregular clearance (no clearance over a week in 22 per cent of areas)
72 India Infrastructure Report 2002

independent assessment carried out by PAC in June 2000 Table 4.2.7

showed that the actual implementation rates are abysmally Ranking of Disabling Factors in Karnataka’s Industrial
low. Only 5 per cent of the large-scale project proposals and Environment (as expressed by large scale investors)
38 per cent of the medium-scale proposals have been Factor Rating1 Intensity of
implemented. An exploratory survey revealed an interesting dissatisfaction2
spectrum of disabling factors (Paul et al. 2000).
Almost 60 per cent of the investors in the large-scale Corruption 3.54 58 per cent
sector identified corruption as the most disabling factor in Infrastructure 3.20 41 per cent
Karnataka. Four out of 10 respondents have given a similar Taxation 3.03 33 per cent
Interface with 2.64 20 per cent
negative rating to the state of infrastructure. In contrast,
Government
only three out of 10 respondents have expressed intense
dissatisfaction with taxation and the government–investor Note: 1 Respondents were asked to evaluate the above factors on
interface (see Table 4.2.7). Similarly, medium-scale investors a scale of 1–5 where 1 was the best and 5 the worst. Ratings
cited corruption, power, roads, and their interface with indicate average of the scores of all respondents.
2 Proportion of respondents giving 4 or 5 to a factor on the scale
government as debilitating factors.

CREATING PUBLIC AWARENESS satisfaction or dissatisfaction with the service of an agency.

The media has played a major role in creating awareness and
sensitizing the public. The Report Card findings are generally
publicized prominently by major newspapers. Agency specific
findings and the novelty of the method used were in part
responsible for this response. And, of course, news about
corruption always makes good copy.
Seminars and meetings are also organized in connection
with the release of Report Card findings. Typically, these
involve local activists in civic affairs, representatives of
residents’ associations, and NGOs interested in the problems
of the urban poor. The second Report Card for Bangalore
was presented at a public meeting in which the CEOs of
major public agencies participated and spoke about the
various proposed reform measures.
STIMULATING AGENCY REFORMS
Report Card studies brought to light a wide panoply of
issues, both quantitative and qualitative, and sent strong
signals to public service providers. The use of a rating scale
permitted the respondents to quantify the extent of their
The scale was used not only for an overall assessment of an
agency, but also for different dimensions of its service. The
inter-agency comparisons with respect to public satisfaction
and corruption that a Report Card permits also created a
platform to stimulate agency interest in addressing the
underlying problems. Quantification and rankings demand
attention in a way that anecdotes do not. They focus attention
on specific agencies and services, that can be embarrassing
to those in charge, especially because of the adverse publicity
involved.
STRENGTHENING CIVIL SOCIETY INITIATIVES
The findings and information provided by Report Cards
have largely succeeded in catalyzing citizens to take proactive
and creative steps. More citizens are involved today as active
partners and participants. The Swabhimana Initiative in
Bangalore, launched in the wake of the release of the Report
Card findings, is one such example. The Initiative, mooted
by the then Commissioner of Bangalore City Corporation,
is a unique state–citizen forum to improve the quality of
civic life in the city. This forum not only experiments with

Table 4.2.8
Satisfaction of Medium Scale Investors in Karnataka, 1999
Environmental Factor Per cent dissatisfied Per cent satisfied

Roads 50.7 46.7

Water 44.0 46.7
Power 68.0 18.7
Telecommunications 29.3 61.3
Taxation 49.3 18.7
Interactions with Government 53.3 30.7
Corruption 65.3 6.7
Manpower Availability 21.3 72.0
 The Constitutional and Legal Framework for Governance 73

Box 4.2.1
Making an Informed Choice

The Public Affairs Centre’s benchmark survey of the industrial environment in Karnataka in 2000 has been acknowledged as a
key input in bringing about drastic reform measures by the government in the form of the Karnataka Industries [Simplification
of Procedures and Documentation] Act/Rule-2001. Building on to the findings revealed by the survey on the interface with the
various agencies, the new Act has amended many outdated rules and regulations that existed as major inhibiting factors.
In a unique experiment of its kind, citizens’ groups in Bangalore collected a set of crucial information from the candidates st anding
for elections and then disseminated the comparative database widely to enable voters to make an informed choice. Data collected
included candidates’ age, educational qualifications, occupation, value of assets, criminal records (if any), compliance with o ther
legal obligations, and priorities for the ward. This exercise was conducted jointly by PAC and Swabhimana.

CITIZENS’ MONITORING OF ROAD WORKS

To enable interested groups and individuals to monitor the quality of roads, PAC in association with the Department of Science
& Technology, government of Karnataka has brought out a ‘Citizens’ Guide on Monitoring the Quality of Road Works’. This ready
reckoner charts out easy and inexpensive procedures and methods to effectively monitor the quality of roads. An interesting outcome
of this has been a Report Card on the roads in Bangalore, based on the Citizens’ Guide, prepared by students in the age group
12–14 years1. Some of its findings are as follows: On an average, on a 300 metre stretch of footpath, pedestrians have to negotiate
73 obstructions, including illegal encroachments and parked vehicles; 65 per cent of the roads had potholes, 61 per cent of the
roads had developed cracks, and 65 per cent were uneven. The findings were then presented to the Commissioner of the city
corporation.

1Times of India (2001), ‘Who says the juniors aren’t interested?’, Bangalore, 15 July.

new approaches to solving problems, but also disseminates
information widely and performs a watchdog function.
Most of the Report Card studies conducted in various
cities by PAC have been done in close association with
public interest groups and NGOs. For these organizations,
the methodology has provided a strong, coherent, and
credible database, highlighting areas of concern that help
them to strategize their options and sharpen their skills in
advocacy. In Chennai, The Catalyst Trust, a not-for-profit
society, collaborated with PAC in conducting a Citizens’
Audit of Public Services in Rural Tamil Nadu; this exercise
benchmarked the impact of charters and policy statements
on three critical civic services.
DEMOCRATIC RESPONSIVENESS
Report Cards draw attention to a plethora of qualitative
dimensions like satisfaction, expectation on quality and the
like, which are missing from the usual statistics on service
delivery. Report Cards may also stimulate political
responsiveness: Democracy is not just about elections, but
also about what happens in between them. In Bangalore,
the Chief Minister’s programme of monitoring public
agencies in the city though an innovative forum called
‘Bangalore Agenda Task Force’ uses Report Cards repeatedly
to assess the progress of proposed reforms and activities.
Findings from these exercises are presented to the city mayor
and other elected functionaries and also widely disseminated
through the media.
CRITICAL SUCCESS FACTORS
The factors that facilitate successful use of the methodology
are:
• Felt need for an objective and credible information:
All effective advocacy interventions have been launched
from a need to have a credible database. Most partner
organizations need the strength of numbers to make their
voice more focused and amplified.
• Focus on institutions: Report Cards chart out feedback
on services and not on individuals. The emphasis is on
creating neutral and scientific institutional databases on
organizations and their activities, and to pave the way for
systemic reforms, and not ‘band-aid solutions’ like transfer
of CEOs of poorly rated agencies. This helps to make
advocacy less confrontational.
• Presence of a local champion: Perhaps the most
critical requirement is the need for local stakeholders like
NGOs and citizen groups who will own the database,
contextualize the findings, and strategize local advocacy
actions.
• Emphasis on experiential and not perceptional data:
Report Cards are not opinion polls. They represent codified
experiences of users of services. This ‘user’ dimension gives
the findings more weight and credibility.
• Conducted by independent and professionally
competent group: The credibility of the local champion has
to be impeccable for the results to be treated seriously.
74 India Infrastructure Report 2002
CONCLUSION
There is a growing awareness among decision makers in
government, academia, and advocacy groups on the potential
of public feedback for influencing the policy environment
and also creating empowering initiatives to make the state
more responsive and accountable. In the public sector today,
there is a slow but definite shift in focus to the consumer
and citizen. The involvement of the civil society is a necessary
corollary. What this means is that results on the ground and
sustainability are now the acid tests of public investments
and state performance. Accessibility, effectiveness, and
responsiveness have become the key dimensions of
4.3 THE LEGAL FRAMEWORK FOR PRIVATE PARTICIPATION
Law is the basic instrument that defines rights and obligations.
The legal framework governing a particular infrastructure
sector would, therefore, determine the extent and feasibility
of private participation of facilities in that particular sector.
The term ‘legal framework’, for the purposes of this paper
means the statutes, rules, regulations, and administrative
orders governing a particular infrastructure sector.
Besides defining the feasibility, the legal framework also
affects the economic viability of private participation in an
infrastructure project. In fact, in no other activity is the
close interaction between law and economics so evident and
clear as it is in relation to private participation in
infrastructure projects.
The legal framework is also the primary source of risk
distribution in infrastructure projects. It provides the basic
framework within which the parties determine the manner
in which the various risks associated with a project are
distributed, managed, and mitigated.
CONSTITUTIONAL PROVISIONS
The Constitutional framework in India does not permit for
a single law governing grant of rights for development of
projects in all the various infrastructure sectors. The Seventh
Schedule to the Constitution of India distributes legislative
jurisdiction over infrastructure sectors between the Union
and the state.16 Further, the executive powers of the Union
16 The Constitution of India, vide Chapter I of Part XI, and in
particular Article 246 read with the Seventh Schedule, specifies the
manner of distribution of the legislative powers over various subjects
including infrastructure sectors and taxation. For a more detailed
discussion on this aspect, see Joshi, (2001).
performance of public organizations. Public feedback
therefore becomes a powerful instrument to ensure public
accountability. Experiments with Report Cards confirm the
value of this public feedback mechanism, both to enable
citizens to signal service providers about their performance
and to stimulate the latter to respond to these signals. The
experiences also reinforce the case for benchmarking
qualitative and quantitative dimensions over time.
The use of public feedback can act as a proxy for the
pressure of competition in a context where customers have
few choices. Report Cards also provide strong signals to
service providers to institutionalize the concept of public
feedback as part of their monitoring functions.
Piyush Joshi • R.V. Anuradha
executive extend to the matters with respect to which the
Union Parliament has powers to make laws and similarly
the executive powers of the state executive extend to the
matters with respect to which the concerned state legislature
has powers to make laws.17 Though presence of sector
specific laws supporting private participation in a given
infrastructure sector provide a more secure basis for private
participation, the absence of a sector specific law per se does
not preclude the possibility of private participation in the
particular sector.
If the relevant legislative body has not enacted a law
governing a particular sector that is within its jurisdiction,
as defined by the Seventh Schedule of the Constitution,
then the corresponding executive authority may allow for
private participation in such a sector. Private participation
based solely on the exercise of executive authority is, however,
exposed to a greater degree of political and legal risk since
an exercise of executive authority is always subject to a
subsequent exercise of legislative authority. It also carries a
higher risk of being challenged in the courts of law as being
an unguided, arbitrary, and unreasonable exercise of
discretion. Issues related to the extent of executive authority
may also be raised. If such executive power is exercised, then
it is best done through formulation of a clear policy
framework for the sectors in which private participation is
being allowed.
A good example of an infrastructure sector not having
a specific law governing it is water supply and sewage
treatment. The power to regulate ‘water supply’ is vested
with the state legislature. The exceptions to the jurisdiction
17 See Articles 73 and 162, Constitution of India.
 The Constitutional and Legal Framework for Governance 75
of the state legislature, under the Constitution of India, in
relation to ‘water supply’ are: (i) regulation of development
of interstate rivers to the extent such control of development
has been declared by law to vest with the Union; (ii) law
relating to adjudication of disputes relating to interstate
rivers and; (iii) territorial waters.
A number of states do not have a specific law regulating
water supply for domestic and industrial use. Usually water
supply within a municipal area is governed by the law of
that particular state regulating the formation, powers, and
functions of the municipal bodies within the state. If however,
a water supply project is established in an area outside the
jurisdiction of the municipal bodies, then no specific law
would be governing it. In such circumstances, the executive
power of the state can be exercised to formulate policies,
guidelines, and framework regulating such projects.
Executive power can be exercised to formulate clear
policies and guidelines even in the presence of specific
legislation as long as it is within the framework provided
by the law. The two National Telecom Policies (the National
Telecom Policy, 1994 and the New Telecom Policy, 1999)
are examples of exercise of executive power to provide for
the basis for the grant of licences, under the Telegraph Act,
1885, to private entities for providing various telecom
services.
ESSENTIAL FEATURES OF THE LEGAL FRAMEWORK
Apart from the statutory framework governing private
participation discussed above, the contractual documentation
for any project is another aspect that would constitute the
‘legal framework’ governing a particular project. The
statutory framework generally governs a particular sector,
and is very rarely project specific. Its aim is usually to
establish a suitable basis for the project specific contractual
framework to be established. Statutory framework comprises
of the laws, rules, regulations, order etc. enacted by the
relevant authorities, whereas the contractual framework
comprises of the project specific contracts entered among
the participants within the framework formulated by the
statutory framework. The contractual framework will reflect
the negotiated and agreed upon basis of controlling the
interests of the various participants.
The following sections shall briefly analyse the key features
of the statutory and contractual framework that can facilitate
private participation.
Comprehensiveness of Rights
Whatever be the structure for private participation that is
adopted in relation to a particular infrastructure sector, it
would be imperative that all the rights required by the
private participant to implement the project within the
framework of the given structure be granted to the private
participant.
For example, in the case of BOOT (Build, Own, Operate
and Transfer) some of the critical rights that need to be
vested with the private developer are:
• Right to enable it to develop, design, construct, own,
operate, manage, and maintain the infrastructure facility.
• Right to enable it to commercially utilize the
infrastructure facility, including the right to determine,
collect, retain, and appropriate tariff from the users of the
facility.
• Right to enable it to restrict access to the facility or
suspend the supply of service (as the case may be) to
defaulters.
• Right to enable it to create an enforceable and valid
security interest in favour of the lenders over assets and
revenue streams.
Certainty and Continuity
Certainty of the rights vested and of the legal framework
governing the project leads to greater comfort relating to
the scope of the private participation and enforcement of
rights in relation thereto. The continuity of the very same
rights over the term of the project is also of critical importance
for a private participant.
The challenge is in drafting laws that are able to provide
certainty and at the same time enough flexibility to
accommodate any change that may be necessary to regulate
the sector.
Risks, Risk Allocation, and Risk Management
Success of private participation in a project and the ability
of a project to be financed on the basis of project finance
(rather than asset or balance sheet finance) depends upon
an appropriate distribution and management of risks
associated with the project. Theoretically, risks should be
allocated to the participant that is best able to either control
or bear that risk. However, it is risk distribution that makes
negotiation of infrastructure project documentation
complicated, intense, and challenging.18
Consumer Issues
The statutory as well as the contractual framework need to
provide an adequate mechanism to handle consumer issues
in order to provide a suitable framework for the
implementation of the project. A credible, competent, fully
functional, and independent sectoral regulatory agency would
be the first critical step in this regard.
18For a detailed discussion on risk identification, allocation, and
management, see Joshi (2001), chapter 3.
76 India Infrastructure Report 2002

Box 4.3.1
Legal Framework in Electricity, Telecom, and National Highways1

In order to be effective, the law and policies ought to provide a clear framework for exercise of discretion by the executive authority
in all aspects of project implementation such as selection of private participant, the manner of grant of rights, the rights th at would
be granted, terms and conditions of the grant of rights, etc., as they impinge upon the risks associated with an economic ventu re.

THE ELECTRICITY SECTOR

At present, the Indian Electricity Act, 1910, the Electricity Supply Act, 1948, and the Electricity Regulatory Commissions Act,
1998 constitute the statutory framework for the sector. A comprehensive Bill, namely the Electricity Bill 2001, is expected to repeal
all these three Acts and replace them by an overall legislation that would govern the entire electricity sector.
The present framework governing the electricity sector allows three venues for private participation: generating companies;
transmission licensees; and licensees for supply of electricity (or distribution licensees). A generating company is allowed to only
establish generating stations and enter into an agreement with the state electricity board for the sale of electricity generated from
such generating station. A generating company is allowed to sell electricity to a person other than the relevant state electricity board
only with the prior approval of the competent government(s).
A transmission licensee could be an inter-state transmission licensee or an intra-state transmission licensee. An inter-state
transmission licensee has to be granted a transmission licence by the central government. It has to work under the direction, control,
and supervision of the Central Transmission Utility. An intra-state transmission licensee has to be granted a transmission licence
by the concerned state government. It has to work under the direction, control, and supervision of the relevant State Transmission
Utility.
A licensee to supply electricity (distribution licensee) can also notify that a generating station that is already established or would
be established would form part of the licensee’s entire undertaking and should be considered as assets of the licensee under the
licence so granted. The generating station that would form part of the licensee’s undertaking can even be outside the area for which
the licence has been granted to it.
The Indian Electricity Act, 1910 also contemplates a ‘bulk licensee’. A bulk licensee is a distribution licensee who is authorized
to supply electricity to other licensees for distribution by them.
Even though the legal framework allows for private participation in every aspect of the electricity sector, namely the generation,
transmission, and distribution of electricity, private participation in the electricity sector has been concentrated mainly in the
generation segment, and that too, by adopting the ‘generating company’ route. This is because the legal provisions governing private
participation through other structures is not adequate to support large-scale private investment.
The notable features in the Acts that increase the risks for licensees are as follows:
Power of the State Electricity Board (SEB) to:
• at any time and at its own discretion, permanently close down a generating station established by a licensee 2.
• at any time, acquire/purchase any undertaking, generating station, or transmission line established by a licensee3.
• to declare any generating station established by a licensee as a ‘controlled station’, thereby altering the framework governing
its operation, tariff and acquisition4.
• to regulate any expansion or replacement or works pertaining to a generating station established by a licensee 5.
• to enter into the premises of and shut down any generating station established by a licensee for certain defaults under the ESA6.
The state government has the power:
• to revoke the licence granted to a licensee at any time after consulting the State Electricity Board 7.
• to unilaterally vary the terms of the licence relating to the consequences of termination8.
• to amend the licence so granted to a licensee at any time after consulting the State Electricity Board 9.
• to direct the licensee to sell its undertaking in accordance with the directions of the state government10.
• to give direction to a licensee in regard to the supply of energy to certain classes of customers11.
1 Each of these sectors is separately dealt with in detail in Joshi (2001).
2 See Section 36 Electricity Supply Act (ESA), 1948.
3 See Section 37 ESA, 1948.
4 See Section 34 ESA, 1948.
5 See Section 44 ESA, 1948.
6 See Section 45 ESA, 1948.
7 See Section 4 (Indian Electricity Act) IEA, 1910.
8 See Section 10 IEA, 1910.
9 See Section 4A IEA, 1910.
10 See Section 5 IEA, 1910 and Section 6 IEA, 1910.
11 See Section 22A IEA, 1910.
 The Constitutional and Legal Framework for Governance 77

In comparison to the licensee route, the generating company route has lesser risks associated with it under the legal framework,
as all these provisions relating to the licensee are not applicable to a generating company.

THE NATIONAL HIGHWAYS SECTOR

The National Highways Act, 1956 was amended in 1995 to specifically vest the central government with the discretion to ‘enter
into an agreement with any person in relation to the development and maintenance of the whole or any part of a national
highway’.12 Thus, private participation in the development and maintenance of national highways has now become possible through
a contractual arrangement between the central government and the private entity(ies).
Certain basic elements for private participation are still missing in the legal framework. The National Highways Act specifies
that national highways shall vest in the Union of India.13 This provision inherently limits the scope and nature of rights that can
be vested in a private developer as the relevant provisions only state that the government can enter into an agreement with the
private participant in relation to the ‘development and maintenance’ of a national highway. This limits the scope of private participation
to ‘development’ and ‘maintenance’; and not to activities such as ‘operation’ and ‘management’ of the national highway, development
of land appurtenant to national highways, etc.
Another concern for any private entity is the scope and powers of the National Highways Authority of India (NHAI) constituted
under the NHAI Act, 1988. The jurisdiction of the NHAI spans over a national highway or part of a national highway which
has been ‘vested’ in it or ‘entrusted’ to it by the central government. Both terms have significantly different legal consequences:
through ‘vesting’, there can be an absolute transfer of interest in the property, depending on the nature of the vesting; whereas
‘entrustment’ would mean transfer in trust for a specific purpose only. This is significant in view of the fact that it is the NHAI,
and not the central government itself, that has been constituted as the authority who would be signing the Concession Agreements
for private participation in the national highway sector. Unless there is clarity as to the scope of powers and jurisdiction of the
NHAI itself, the very basis of the Concession Agreement through which rights are sought to be granted to private developers, would
be in question14.
Aspects that could be of worry to large-scale and long-term private participation would include:
• Mandatory vesting of all national highways with the Union which precludes vesting of any proprietary interests in private
parties over the national highway itself.
• Authority of the NHAI to enter into the concession agreements is questionable as it is the Union government which is mandated
under the NH Act to enter into the agreement with the private developer. The NHAI Act does not vest adequate corresponding
powers or authority with the NHAI for vesting the rights and powers with a private entity as are provided for in the concession
agreement.
• Framework for the determination and levy of fee for the use of the national highways does not adequately cover and address
critical issues such as: certainty of criteria for determining the fee; protection of the right of the private participants and lenders
to participate in the process of determination of fee; certainty as to the notification of the fee by the government; and certainty
of the actual capital cost of the facility to be taken into consideration.
• Inadequacy of powers conferred on the private participant to enforce the collection, retention, and appropriation of the fee
from the users.

12
See Section 8A National Highways Act.
13
See Section 4 National Highways Act.
14
For a greater discussion on the scope and limits of private participation under the NH Act, the NHAI Act, and the Model Concession
Agreement, see Joshi (2001), pp. 508–40.

Next would be an adequate mechanism to establish the
various basic principles for determination of tariff that would
be protected and enforced by law. Another step would be
to establish the basic principles that would determine and
test the validity and legitimacy of consumer issues. The
Supreme Court of India has identified certain principles for
determining the validity of writ petitions being filed in
relation to a public interest litigation (PIL).19
19 The principles established by the Supreme Court in this regard
include:
• Only a person acting bona fide and having sufficient—interest
in the proceeding of public interest litigation will have the ability
to file a valid PIL. A person prompted by personal gain or private
A CRITIQUE OF THE LEGAL FRAMEWORK FOR
PRIVATE PARTICIPATION
Even though Indian laws do not clearly prohibit private
participation, and may in fact specifically state and provide
for private participation, most of them still have certain
profit or political motive or any oblique consideration cannot file
a valid PIL. The actions should be for specific redressal of issue
relating to public injury or violation of statutory or legal or
constitutional principles.
• The relief would be corrective and not compensatory in nature.
• The remedy would generally be negotiated or quasi negotiated
rather than imposed. PIL involves collaboration and co-operation.
78 India Infrastructure Report 2002
critical drawbacks which effectively deter private participation
in the relevant infrastructure sector. Some of these drawbacks
are as follows:
• Law may not allow for private interest to be created
in an infrastructure facility: This drawback can be found
in the municipal laws of many states which mandatorily vest
many critical urban infrastructure facilities in the local
municipal authority. For example in relation to water supply,
municipal legislations of many states mandate that all water
treatment plants and distribution facilities within the given
municipal area shall vest in the local municipal authority.
The immediate effect of such a provision is that any such
facility, as and when developed, becomes the property of,
and falls under the complete control of, the local authority.
• Law may mandate certain services to be provided
only through a specific statutory body/authority: A number
of states have enacted laws to establish specific authorities
that are vested with the exclusive authority to establish
infrastructure facilities and provide specific services within
a specified area. For example, water supply and sewerage
boards are generally vested with the exclusive authority to
supply water and undertake sewerage treatment in the area
under their jurisdiction.
• Law may not provide for adequate protection of private
investment: The legal framework may provide wide and
easily exercisable discretionary powers to the government/
government authority to take over a facility established by
a private entity. For example, under the Indian Electricity
Act, 1910 read with the Electricity Supply Act, 1948, the
facilities established by a licensee under the IEA, 1910 can
be taken over by the SEB through a relatively easy procedure
of adequate notification. When private participation was
allowed through the generating company route, these laws
had to be amended to specifically protect the assets developed
by generating companies from such wide discretionary
powers. In the absence of such specific amendments, would
not have been possible to obtain private investment in the
generation sector.
• Law may not adequately provide for vesting of all
relevant rights required for the development and
implementation of an infrastructure project with a private
entity.
• Law may not provide for creation of security interest
over the infrastructure facility in favour of lenders. Lenders
• The legal proceeding should be for enforcement of rights of
persons who are otherwise unable to enforce their rights.
• When the petitioner seeks any relief to serve his self interest,
apart from that of the community, that relief would be refused.
• PIL should not be allowed to be misused for vindicating enmity
or rivalry.
• PIL is not for settling disputes between two individual parties.
are, technically, third parties to any agreement/arrangement
between the government and the private developers. However,
they typically have large financial stakes in infrastructure
projects. The laws governing various infrastructure sectors
in India do not address the aspect of rights of lenders to
a project. Even in an infrastructure sector such as
telecommunications, which has a high level of private
participation, the law and the licence provide for the direct
taking over of the facility by the government in the event
of a default by the licensee or the termination of the licence.
The law as well as the licence itself does not provide a secure
basis for the establishment, recognition, and enforcement
of the rights of the lenders to a project. It is essential to
address this aspect in order to ensure that lenders’ interests
in a project are adequately safeguarded.
• Law may not provide for due recognition and
enforcement of lenders’ rights: In order to enable successful
project financing of infrastructure projects it is critical that
the relevant law enables the creation of the security interest
in favour of the lenders in the assets of the project, recognizes
all the necessary rights relating to the continued
implementation of the project, and allows for a secure and
speedy enforcement of such security rights. This is a function
of not only the infrastructure specific laws but also the laws
relating to banking, property, enforcement of rights relating
to property, and civil procedure followed by courts. It is not
really possible to conclude a pure project finance transaction
in India. All financing of infrastructure projects in India has
a large component of recourse against the equity sponsors
or have a large component of guarantee based financing.
This situation is a direct result of the existing legal framework
relating not only to the specific structures but other general
law relating to enforcement of security rights.
This was one of the main issues that held up the adequate
financing of the basic telephone service projects and certain
cellular projects in 1995–7. This led to a move to formulate
a direct agreement between the government of India and
the lenders, acting through a security agent, that would
allow for rights to be created in favour of the lenders in the
licence and the project and also to regulate the rights of the
government to terminate a licence and take over the network.
However, even though an amendment was circulated to the
licensees indicating that: (a) rights in relation to the licence
and the project can be created in favour of the lenders in
accordance with the direct agreement; and also that (b) the
rights of the government to terminate the project will be
subject to the rights of the lenders under the direct agreement,
till date the draft of the direct agreement has not been
finalized or approved by the government.
• Law may not provide for imposition of tariff/fee/toll
for use of the infrastructure facility/service so provided: It
is common to find that the legal framework of a specific
 The Constitutional and Legal Framework for Governance 79
infrastructure sector may not allow for, or be completely
silent on, the imposition of tariff in relation to the concerned
infrastructure facilities. Many state laws relating to urban
infrastructure such as roads, bridges, and water supply do
not support imposition of tariffs in relation to the use of
such facilities.
• Law may not provide for or support imposition of
regulated yet commercially viable tariffs/fee/tolls: Often it
is found that even if the legal framework provides for
imposition of tariff for use of a specific infrastructure facility,
the tariff so mandated is not one that could provide a
commercially viable proposition to support large-scale
investment of private capital, for instance in the case of
roads and bridges. Many states do have a Tolls Act that
enables the levy and collection by the government of a tariff
on the use of a state road or bridge. However, the level of
the tariff and the extent to which it can be revised is
extremely low and commercially unviable. Similarly, the
framework for the levy, determination, collection, and
revision of the general rates of tariff for supply and usage
of potable water in urban areas do not provide for commercial
viability of investment.
• Law may not allow or support a mechanism for a
procedure that allows for participation of the private
developers in the determination of tariff: To take an example,
the Electricity Regulatory Commissions Act, 1998 empowers
the Central Electricity Regulatory Commission and the
State Electricity Regulatory Commissions to determine tariff
for the sale of electricity within their respective jurisdiction.
The provisions that provide the guidelines for the exercise
of such power by the respective commissions however do
not mandate participation of the private developers in the
relevant aspect of the electricity sector for which the tariff
may be determined by the respective commissions.20
• Law may not have adequate provision for collection
and appropriation of tariff/fee/toll by the private entity
from the users of the infrastructure facility: This is a drawback
that can be commonly spotted in state laws relating to levy
and collection of tolls on roads and bridges as well as
municipal laws governing urban infrastructure such as the
water sector. In the absence of a specific right to retain and
appropriate tariff, there is always the possibility of challenging
the revenue stream from the facility as being a public revenue
20 See Section 28 and Section 29 Electricity Regulatory
Commissions Act (ERCA), 1998. Section 28 of the ERCA, 1998
governs the determination of tariff by the Central Commission while
Section 29 governs the determination of tariff by the State
Commission. The two provisions stipulate certain principles which
the commissions would be ‘guided by’ in the determination of tariff.
The principles so stated are therefore not mandatory factors but only
guidelines. The principles so stipulated as guidelines themselves do
not provide for the participation of the private developers in the
process of determination of tariff by the commissions.
stream that should go into the consolidated fund of the state
rather than a private revenue stream that is the property of
the private developer. This is particularly so in cases such
as tolls on roads and bridges where most of the state laws
governing tolls on roads and bridges specifically mandate
that the amounts so collected shall be part of the consolidated
fund of the state.
• Law may not provide for an adequate independent
regulatory mechanism: The mere establishment of a regulator
is not sufficient. The law has to provide and protect the
independence of the regulator from not only political/
government influence but private influence as well. A general
regulator will typically therefore not be as effective as a
sector specific regulator, given the detailed technical
considerations that are involved in tariff setting.
• Law may not provide for adequate dispute settlement
mechanism: Delay in the implementation of the project
caused due to (expected) delay in the settlement of disputes
will ultimately get factored into the cost of the infrastructure
facility, and could even result in making the project itself
unviable.
Disputes in relation to an infrastructure project can arise
at every stage, right from the very beginning.
Since it may not be a viable proposition to always establish
a separate mechanism intended solely for settlement of
disputes relating to infrastructure projects, settlement of
disputes through conciliation and arbitration is often
regarded as a faster and better mechanism in this regard.
Speedy enforcement of arbitration agreements in the law
would therefore help considerably. The presence of an
independent regulator who can pre-empt, and effectively
redress situations of dispute, is also a critical necessity.
• Law may impose excessive taxes/duties in relation to
the process of implementation of infrastructure development:
It is common to find that the Union laws impose a specific
set of taxes, and the laws of the relevant state impose another
set of taxes, and to compound these, municipal authorities
also impose taxes on various aspects of an infrastructure
project. If the tax laws are not reviewed and harmonized,
it is possible for the private participants and the project itself
to be subject to multiple taxation that could shrink its
demand considerably.
CONTRACTUAL FRAMEWORK
The contractual framework established by the participants
for each specific project has to be within the overall
framework provided by statutory regulations. It is the
contractual framework that actually governs the day to day
implementation of the project. The contractual framework
reflects the risk sharing arrangements agreed to between the
parties.
80 India Infrastructure Report 2002
Even with an excellent statutory framework, if the
contractual framework for a particular project is not
adequate, the project could fail to obtain adequate debt and
equity funding. The contractual framework also fills the
space and the lacunae left by the overall statutory framework.
A complex web of interdependent contractual obligations
often arise in the implementation of infrastructure projects.
It is a common and perhaps inappropriate criticism of
private participation in infrastructure projects that
complicated contracts are used by parties to ‘mystify and
cloud the issues’. It is important to understand that each
of the contracts in this ‘web’ has a specific and critical
purpose to serve, the absence of which would result in
vagueness and ambiguity of obligations and rights of various
participants in the project. This aspect is sought to be
illustrated through the example of the Power Purchase
Agreement and related documents.
A ‘core’ document (for example, a Power Purchaser
Agreement, or a licence or a concession agreement) usually
forms the basis on which the entire contractual framework
emerges. The ‘core document’ is one between the developer
and the relevant government or authority which establishes
the rights of the private participants to develop and
implement the project. From the core document there
emerges a system of contractual documents which tie down
all the participants in the project to each other and establish
the framework that enables the equity and debt financing
of the project and its implementation. A typical contractual
framework comprises of the construction contracts, the
operation and maintenance contracts, the equity financing
arrangements, the debt financing arrangements, and security
documents. The basic aim of the contractual framework is
to ensure that all the major participants to the project have
obligations towards completing their portion of the project
implementation and to ensure their direct privity/
relationship to the lenders, in order to ensure adequate
security for the debt financing of the project on a partial
recourse or non recourse basis.21
A diagrammatic representation of the main contractual
documents forming a typical contractual framework for a
power project in India can be seen in Fig. 4.3.1.
21 Due to the quantum of financing required for the
implementation of an infrastructure project, it is not a viable option
to undertake debt financing on the usual recourse basis as in the
case of industrial projects. Debt finance for infrastructure projects
is sought to be raised on the basis of the project itself with the main
security being the revenue stream generated from the operation of
the project. The emphasis of the security structure is therefore not
on the assets of the borrower itself but in the due implementation
and operation of the project. There is usually no or limited recourse
to the private entities actually implementing the project. This structure
for debt financing is referred to as ‘project financing’ or ‘non recourse
financing’. For further discussion on debt financing of infrastructure
projects see Joshi (2001), chapters 2, 3, and 5.
From these interlocking set of contracts22, it is, therefore,
clear that the contractual framework governing the
implementation of a project is as critical to the implementation
to the project as the statutory framework. The statutory
framework determines the sanctity of the contractual
framework and determines the ability of the parties to enforce
their rights under the contractual framework.
UNIFORM LAW FOR INFRASTRUCTURE PROJECTS
As discussed earlier in this paper, the Constitutional
framework in India does not permit for a single law governing
grant of rights for development of projects in all the
infrastructure sectors.
The Constitution of India, through Article 246 read with
the Seventh Schedule, distributes various legislative fields
between the Union Parliament and the state legislature. The
Seventh Schedule provides for three lists of legislative fields:
the Union List, the State List, and the Concurrent List.
Table 4.3.1 depicts an indicative list of items in the three
list.
Further, the Constitution of India, and the state laws,
vest municipalities and panchayats23 with responsibilities
and jurisdiction over certain infrastructure facilities within
their territorial jurisdiction. Matters listed under the
Constitution as capable of being delegated to municipal
bodies pertain largely to urban planing, including town
planning; regulation of land use; water supply within the
municipal jurisdiction; and public amenities.
A majority of matters that may be delegated to panchayats
pertain to agricultural and rural development. Panchayats
in Scheduled Areas24 have greater powers under the
Panchayat (Extension to Scheduled Areas) Act, 1996, as
may be specifically vested with them by each state. The
authority of the gram sabha that could be relevant for
infrastructure projects under this Act are: (i) the right to
be consulted before any decision is made with respect to
acquisition of land in the Scheduled Areas for development
projects and before resettling and rehabilitating persons
affected by such projects in the Scheduled Areas; (ii) the
recommendations of the gram sabha are mandatory prior
to the grant of prospecting licence or a mining lease for
minor minerals in the Scheduled Areas; (iii) the power to
prevent alienation of land in the Scheduled Areas and to
take appropriate action to restore any unlawfully alienated
land of a Scheduled Tribe; and (iv) the power to control
local plans and resources for such plans.
22 For a more detailed discussion on each of these agreements,
see Joshi (2001), pp. 356–71.
23 Panchayats are local self-government bodies at the village level.
24 Areas so declared under the Fifth or Sixth Schedules to the
Constitution of India.
 The Constitutional and Legal Framework for Governance 81

Share Pledge
Agreement

Security
Agent Direct Agreements
Agreement

Security Agreements
PPA Payment
Security
Inter Creditor
Agreement
Guarantees

$ Loan Rs Loan
JVA/SHA TRA
Agreements Agreements

Hypothecation

Equity Sponsor Common

Funding Support Agreement Mortgage
Agreements Agreement

Equity Agreements and Debt Financing Agreements

EPC
Fuel Sub
EPC Contract
Supply PPA Agreement
Agreement Agreements

Fuel
Transport O&M
Agreement Agreement

O&M Sub Contract

Agreements

Figure 4.3.1 Illustrative Contractual Framework: Power Project.

Notes:
PPA power purchase agreement
JVA joint venture agreement
EPC engineering, procurement, construction
O&M operations & maintenance
TRM trust retention account agreement
SHA shareholder agreement
82 India Infrastructure Report 2002

Table 4.3.1
Distribution of Activities in Accordance with the Seventh Schedule and Article 246 of the Constitution
Union List (List 1) State List (List II) Concurrent List (List III)

Railways
Highways
Shipping and Navigation
Major Ports
Airways, Aircraft, Air Navigation,
Aerodromes
Posts and Telegraphs
Regulation and Development of
Oil fields and Mineral Oil Resources
Regulation and Development of Inter-
state Rivers and River Valleys
Foreign Loans, Banking Tax on Income
(other than agricultural income)
Currency, Foreign Exchange
Roads, Bridges, Ferries, and such
communication as is not specified in
List 1
Water supplies, Irrigation, Canals,
drainage—subject to power of Union
Land, Land tenure
Regulation of Mines and Mineral
Development, subject to power of
Union
Gas and Gas works
Local Government
Taxes on Consumption or sale of
Electricity
Rates of Stamp Duty
Ports other than Major Ports
Shipping and Navigation in Inland
Waterways
Electricity
Transfer of Property other than
Agricultural Land
Acquisition and Requisition of property
Contracts
Economic and Social Planning Price
Control
Commercial and Industrial Monopolies

Any law governing the grant of rights/licence/concession
for development of infrastructure projects would therefore
have to take into account these aspects. The alternative to
sector specific laws is for the legislative bodies to enact a
general law in relation to the sectors that fall within their
jurisdiction. The Union Parliament could enact a law
allowing for private participation in the infrastructure sectors
specified in the Union List and the Concurrent List. Each
state could conceivably enact a relevant law in relation to
the infrastructure sectors falling within its jurisdiction.
A number of states in India are in the process of drafting
laws for facilitating infrastructure projects within their
territories. The state of Gujarat has already enacted such a
law, which we briefly discuss below.
GUJARAT BOT LAW25
The Gujarat Infrastructure Development Act, 1999, (the
‘GIDA’ or ‘Act’) was the first law of its kind in India.
Enacted by the state of Gujarat, it focuses on facilitating
infrastructure development through private participation
within its territory. The Act establishes the Gujarat
Infrastructure Development Board (GIDB), comprising of
members appointed by the state government, and provides
for the basic framework along which the GIDB would
function and facilitate private participation in infrastructure
projects. Several options for such participation are envisaged
in a schedule to the law (build, operate, transfer (BOT);
build, operate, lease, and transfer (BOLT); renovate, operate,
and transfer (ROT)).
The scheme for the concession agreement is to be
separately prescribed. The nature of projects listed as falling
25 For a discussion on the same, especially its creation see
Chakraborty, Atanu (2000).
within the jurisdiction of the Act are specified in Schedule
1 to the Act consistent with state subjects under the
Constitution. Schedule 1 also mentions ‘Power Generation,
Transmission and Distribution Systems’, which is in the
Concurrent List. While facilitating projects on this subject,
due compliance would have to be made with the Union laws
prevalent in this sector. The Act provides for selection of
the project proponent through the process of competitive
bidding. Direct negotiations are also envisaged in the event
that proposals are submitted not as response to any specific
bidding process, but by the initiative of the concerned
entity(ies).
The law prescribes selection of bidders in an open bidding
process based on three successive sets of criteria: pre-
qualification; technical; and financial. Of these, the Act lays
down the criteria for financial evaluation.
The Act allows the project developer to charge fees as
specified in the concession agreement. Such fees can also be
revised, based on criteria specified in the agreement. The
Act recognizes that rate of inflation and variation in rate
of foreign exchange are factors which may be taken into
account for revision of fees. As financial security, the project
developer is required to open an escrow account or execute
a performance bond.
The Act identifies several ways in which the state
government or its agency can provide assistance for the
project, such as through participation in the equity of the
project company; extending of subsidies; senior or
subordinate loans; executing government guarantees;
operation of escrow account; conferment of development
rights in respect of any land; and incentives in the form of
exemption or deferral of taxes.
The Act also considers the possible scenarios which may
emerge from termination of the concession agreement with
a project promoter, and provides for:
 The Constitutional and Legal Framework for Governance 83
• payment of compensation to the developer in
accordance with the concession agreement;
• take over of the project without repaying the
investments made by the developer upon termination for
default of the developer, but at the same time assuming
liabilities of the developer for repayment of loans taken in
lieu of the project;
• new concession agreement with a person
recommended by the lenders, on the same terms as specified
in the earlier concession agreement.
The GIDA is in the nature of an overarching framework.
Almost all of its specific provisions would require greater
4.4 OPENING DOORS TO ‘THE OUTSIDER’: THE RIGHT TO INFORMATION27
In the government’s role as a provider of social and economic
services—policing, roads, schools, bridges, ration shops—
the right to information of its citizens has never been enforced
and has rarely been invoked. People at all levels have
continued to suffer the colonial regime of secrecy which has
been enforced through enactments like the Official Secrets
Act of 1923—a law which dominates the mindset of the
public official from the clerk to the highest levels of
government. The operation of this legislation has been
supported by other restrictive provisions contained in the
Indian Evidence Act, the Code of Conduct for Civil Servants,
and other practices such as marking the most ordinary
documents as ‘secret’ or ‘confidential’. Information has been
treated as the exclusive domain of government and requests
for the most banal bits of information are treated with
apathy or animosity. In this regime, the functioning of
information ‘touts’ has flourished in every activity and a
parallel system of acquiring information, whether from
‘closed door’ cabinet meetings or from one’s own service or
electricity records, has developed.
Despite court rulings to the effect that the right to
information is basic, there has been little use of the same
right for betterment and accountability. This has been so
because of (i) the blanket restrictions that arise out the
Official Secrets Act 1923, wherein under an undefined
‘public interest’, virtually all information can be denied;
(ii) poor state of records, and even poorer information
retrieval mechanisms; and (iii) untimeliness and poor form
of the little information provided.
Decentralization, the advancement of democracy, political
development, and the emergence of NGOs, and multilateral
agencies (MLA’s) insistence on transparency have all led to
a realization that a right to information would have to come
elaboration of basic principles and criteria in order to make
it a strong statute. For instance, the basic principles of the
concession agreement, the aspects that would require
elaboration in the bidding process, the factors to be
considered ‘relevant’ for selection of the project promoter,
and monitoring of the project during its lifetime are some
of the aspects that the law could make clearer. This would
mean guided exercise of executive decision by the
government/statutory authorities, and the establishment of
essential criteria that cannot be deviated from. One example
where this has been achieved is in the Philippines statute
governing infrastructure projects26.
Abha Singhal Joshi
about. The response of the state in India to the issues raised
by the call for openness has been to legislate in the form of
Freedom of Information (FOI) or Access to Information Acts.
While countries like Sweden and the USA have FOI Acts in
place since the 1960s, other countries that have recently
legislated the right to information are the UK (2000), South
Africa (2000), Ireland, and, closer home, Japan, the Philippines,
and Thailand.
The right to know has been held to be inherent in Article
19 (1) (a) of the Constitution of India, which guarantees
the right to freedom of speech and expression. The basic
argument, even if it pertains to the right of the media to
publish and disseminate information, is that a person must
have information in order to formulate and express his or
her views. This right includes the right to express criticism
or dissent of any policy or decision. The right to know, then,
is closely related to another fundamental right under Article
21 of the Constitution––the right to life and personal liberty.
The right to information is a must for realizing the right
to equality guaranteed by Article 14 of the Constitution.
It stands to reason that in a decision making situation of
large social import, all parties concerned must have equal
access to facts, and a free flow of information would ensure
transparency and in turn, absence of arbitrariness.
26
The Philippines’ statute R.A. No. 6957, entitled ‘An Act for
Authorizing the Financing, Construction, Operation and Mainte-
nance of Infrastructure Projects by the Private Sector and for Other
Purposes’, provides a valuable illustration of the nature of aspects that
such a law on this subject could cover.
27 In India Infrastructure Report 2001, Section 5.8, I had very
briefly commented on the Information and the Draft Bill. This
section takes the discussion further.
84 India Infrastructure Report 2002

Box 4.4.1
The Freedom Of Information Bill

The Freedom of Information Bill was first drafted by the Shourie Committee,1 whose terms of reference were:
a. To examine the need and feasibility of either a full fledged Right to Information Act, or its introduction in a phased manner
to meet the needs of open and responsive government.
b. To identify specific areas where right to information can be built into the working procedures and system, especially in
large departmental undertakings, including railways, telecommunications, postal services, passports and banking at the central level.
c. To examine the internal working procedures (of departments and governments) with a view to introducing greater openness
and transparency in handling of employee grievances and internal consultation.
d. To examine the rules framework with particular reference to the existing conduct rules and manual of office procedures
with a view to introducing greater openness and transparency in government working, including dealings with employees.
e. To examine the nature and content of training to promote greater openness and more customer responsive public dealings.
The Working Group consisted of ten persons amongst whom were consumer rights activist H.D. Shourie as the Chairperson,
Soli Sorabjee, a senior advocate and the present the Attorney General of India, and eight civil servants representing various central
government departments. The Working Group gave its report in a period of approximately four months, during which period it
held a total of six meetings to arrive at the draft. The Group consisted mainly of government servants, which surely would have
narrowed the perspective and concerns of the deliberations. Since the Group was dealing with issues where sections of the public
would be pitted against the government, a larger representation from the public in the Working Group would have been necessary.
The composition of the Group, was very urban-centric as well as central government oriented. Availability of information is of
particular importance to governance at the local level––at the level of panchayats and municipalities, besides at the level of the
state government. However, not all concerns of the public were reflected. The Report did not suggest any concrete steps to simplify
the existing procedures. The Report and the Draft Bill also did not indicate how the central law is to function qua pre-existing
systems of information, such as under the Panchayati Raj Acts in various states, or the right to have information under the various
land and revenue laws of the states.
The Group consulted only two people in the course of formulating its recommendations––namely, P.B. Sawant the Chairman
of the Press Council of India and A.K. Venkat Subramaniam, Secretary, Department of Consumer Affairs. Their responses are not
mentioned in the Report. The Report is otherwise silent on the process of consultation, if any, with various interest groups. The
Report makes no mention of the materials referred to except some laws of other countries but omits to mention the relevance or
content of these laws.2 The result was a somewhat skimpy and insipid report which sidestepped most of the terms of reference
and presented a draft Right to Information Bill which left much to be desired.
At the departmental and cabinet committee levels, not much homework went into the Bill, except for the dropping of certain
good provisions, such as the provision for a Council for Right to Information and an independent appellate body. The lack of
application is further reflected in the Hindi version of the Bill, which is a poor and cryptic translation of the English version, with
unfriendly and even wrong usage.
The Bill, after being introduced in the Lok Sabha in July 2000, was debated on for 40 odd minutes and Home Affairs referred
to the Parliamentary Standing Committee on Home Affairs. The Committee heard witnesses which included senior activists and
NGOs working on the issue.3 The Committee submitted its report to Parliament4 on 25 July 2001. The report enumerates the
suggestions and recommendations of the witnesses but does not make any major or concrete recommendations for changes in the
Bill. The Bill is now back on the table of the House and will, in all probability, be passed in its present form.

1 Working Group on Right to Information and Promotion of Open and Transparent Government, Government of India, 1977.
2 For a detailed critique, see Abha Singhal Joshi, ‘An Appraisal of the Report of the Working Group on Right to Information and Open and
Transparent Government’, Commonwealth Human Rights Initiative, 1998.
3 The witnesses include Madhav Godbole, Manubhai Shah, A.G. Noorani, P.B. Sawant, Commonwealth Human Rights Initiative, and Mazdoor
Kisaan Shakti Sangathan.
4 Department Related Parliamentary Standing Committee on Home Affairs, Seventy Eighth Report on Freedom of Information Bill, 2000.

RIGHT TO INFORMATION LAWS ELSEWHERE
The processes followed in drafting the ‘Freedom of
Information Bill’ in India is in sharp contrast with the
processes followed in other countries which have drafted
right to information laws in recent times. South Africa,
which passed its law on right to information last
year,28 drafted its Bill after thorough research and
consultation with various departments, institutions, and
ministries and government departments/offices (including
the premiers of provinces, the Public Protector, Attorney
General, South African Police Services, South African
28 Promotion of Access to Information Act, 2000.
 The Constitutional and Legal Framework for Governance 85
Defence Force and the National Intelligence Agency, the
Chief Justice and Judges President of the Supreme Court).
Similarly, the Open Democracy Advisory Forum (consisting
of more than 60 organizations mainly representing civil
society) and various parastatals and non-governmental bodies
participated extensively in the deliberations. As a result,
their law, though somewhat detailed, takes into account
various factors like a not completely literate population.
The processes gone through were also useful in educating
the public about the law.
In the United Kingdom, known to have one of the most
closed systems of governance, the government brought out
a White Paper on freedom of information, on which
comments from the public were sought. The government
had also placed the detailed White Paper on a website for
further reach. Although the Bill, when drafted, diluted
many of the recommendations of the White Paper, wide
publicity enabled civil society groups to engage with their
Members of Parliament (MPs) and negotiate better provisions
of the law.
Flaws in the Laws
Freedom of information laws have been passed by several
Indian states29 in the last four years and the central
government’s Freedom of Information Bill 2000 is pending
in Parliament.
The biggest drawback is the array of exceptions in all the
laws, all so worded as to enable the continuance of
withholding of information on vague and specious grounds.
Tamil Nadu (1997) and Maharashtra (2000) take the lead
with 22 exceptions each, with several sub-sections to them,
where the bulk of the provisions relate to information that
cannot be given. The exceptions are widely worded and
contain an unspecified and vague ‘likelihood’ of harm to
various aspects of government’s functioning. For example,
the Tamil Nadu and Maharashtra enactments both contain
clause 3 (2) (q) which restricts the release of information
‘the disclosure of which could lead to improper gain or
advantage or would prejudice:
i. the competitive position of a department or other
public body or authority
ii. negotiations or the effective conduct of personnel
management or commercial or contractual activities.’
These two Acts also have the onerous provision of entitling
only a person who ‘bonafide’ requires information, to ask
29 Tamil Nadu, Goa (1997), Rajasthan, Maharashtra (2000),
Delhi (2001). Madhya Pradesh passed an Act in 1998, which did
not come into force for want of presidential assent. Madhya Pradesh,
however, has a series of executive orders whereby government
departments are required to give information to the people. Uttar
Pradesh has a Code for Access to Information, which has been made
applicable through an executive instruction.
for it. This single provision strikes at the very root of the
right, as it seeks to maintain the status of treating an ordinary
person asking for information with distrust and suspicion.
Other provisions in other state laws as well as the central
law are equally open to misuse by their very nature. ‘Prejudice’
to the sovereignty and integrity of India, conduct of centre–
state relations, and public safety and order are grounds for
refusal to be found in all the enactments. Under some Acts,
information which would ‘harm the frankness and candour’
of internal discussions can be refused!
Many Exemptions
In the central FOI Bill, ‘cabinet papers including records
of the deliberations of the Council of Ministers, Secretaries
and other officers’ are all exempted from being disclosed.
Practically the entire decision making process on policy is
sought to be kept secret. Yet no timeline is prescribed for
when the same is eligible for disclosure. Moreover, there are
certain institutional exemptions given in Part A of the
Schedule, under which the Intelligence Bureau, Research
and Analysis Wing of the Cabinet Secretariat, Directorate
of Revenue Intelligence, Central Economic Intelligence
Bureau, Directorate of Enforcement, and the Narcotics
Control Bureau are exempt from the operation of the law.
The government has also kept to itself the power to include
more organizations in the Schedule. These kinds of blanket
exemptions are untenable and the extension of the protection
even to the administrative activities of these organizations
is not wise. For example, tenders called for by any of these
organizations should have been in the public domain as
with other departments.
Section 9 of the FOI Bill adds further grounds for refusal,
some of which, such as requests which are too general in
nature or requests for unusually voluminous information,
are valid. The problem clause is 9(c) which allows requests
to be refused if it ‘relates to information that is contained
in published material available to the public’. This clause,
in the absence of casting a corresponding duty on public
bodies to publish and make available certain kinds of
information at an affordable price, would give rise to several
problems of accessibility, such as the inability of people to
access information contained in highly priced publications.
None of the above exceptions are subject to overriding
public interest, that is, that disclosure may be allowed if it
is in the benefit of the public to have the information, as
opposed to the harm that non-disclosure would cause. This
is an essential aspect of modern right to information laws,
and has been included in the laws of South Africa, United
Kingdom, and Japan. Under the Japanese law, certain kinds
of private or corporate information is exempted from
disclosure, but these can also be disclosed where disclosure
is necessary to protect a person’s life, health, livelihood, or
86 India Infrastructure Report 2002
property, or where, on balance the benefits to disclosure
outweigh the interests protected by non-disclosure.
Section 11 of the Indian FOI Bill which pertains to notifying
a third party about whom information is sought to be disclosed,
allows disclosure in case the ‘public interest in disclosure
outweighs in importance any possible harm or injury to the
interest of such third party’. However, curiously, it specifically
leaves ‘trade and commercial secrets protected by law’ out of the
ambit of the public interest disclosure clause. This could be a
cause for serious concern and would give rise to a situation
where trade and commercial secrets, once given into the
confidence of the government, would always remain inaccessible,
public interest notwithstanding. By the application of this
section, a company like the Union Carbide Corporation could
claim secrecy for their patented antidotes to Methylisocyanate,
even though revealing it could mean curing hundreds suffering
from the after-effects of a deadly gas that leaked due to the
gross negligence of the third party in the first place!
That the nature of the widely worded exceptions are sure
to be misused is already becoming evident from the responses
which information seekers are getting in various forums. In
Rajasthan, where the right to information Act came into
force in May 2000, an application for records of Panchayat
expenditure was made by the MKSS30 under the Panchayat
Act rules. Photocopies of development records pertaining
to various schemes such as Indira Awaas, etc. were refused,
citing a Gram Sabha resolution to the effect that giving the
records would create a breach of peace and a law and order
problem and would also create a hurdle in performance of
official functions of the panchayat!
OBLIGATION TO PUBLISH IN ACTS OF CERTAIN
STATES
A positive aspect of the FOI Bill as well as the Karnataka
and Delhi Acts is the obligation31 cast on public bodies to
maintain, catalogue, and publish their records, publish their
own powers, duties, norms of functioning, rules, regulations,
instructions, manuals, etc. They are also under an obligation
to publish all relevant facts concerning important decisions
and policies that affect the public while announcing such
decisions and policies and to give reasons for their decisions,
whether administrative or quasi-judicial to those affected by
the decisions. Moreover, they are required, before initiating
any project, to ‘publish or communicate to the public
generally or to the persons affected or likely to be affected
30 Mazdoor Kisaan Shakti Sangathan, a movement in the backward
areas of Rajasthan.
31 Section 4, FOI Bill, 2000, Section 4, Delhi Right to Information
Act, 2001 and Section 3, Karnataka Right to Information Act, 2000.
Rajasthan has a diluted version of this provision in Section 12-A.
by the project in particular, the facts available to it or to
which it has reasonable access which in its opinion should
be known to them in the best interests of maintenance of
democratic principles’.
The positive and proactive nature of this provision is
limited by two requirements. The first relates to limiting
the giving of information to ‘before initiating any project’.
Although this would give the stakeholders an opportunity
to put in their dissent or concerns on the project, there is
a likelihood of their getting out of the process altogether
once the project has begun. The public body would not be
under a duty to inform the public of subsequent changes
before incorporating them. Section 4 (c), in turn, only
requires relevant facts concerning important decisions and
policies that affect the public to be published while
announcing such decisions.
This provision leaves out entirely the duty to proactively
inform people of other things which are not ‘projects’. For
instance, information concerning the health and security of
people, information relating to climatic or weather
conditions, natural disasters like floods and cyclones, or
pollution and the environment are thereby left out. Much
of this kind of information is not only in the domain and
control of government but it is government alone that has
the resources to spread the information cheaply and quickly
through its various networks at all levels. In particular,
information related to disposal of nuclear wastes ought to
be made available.
Secondly, the duty to inform is restricted to facts ‘to
which it has reasonable access’ and ‘which in its opinion’
should be known to them. Both are manifestations of the
wide discretion that runs through the whole legislation.
PROCEDURES FOR OBTAINING INFORMATION
IGNORED
The laws are equally weak in thinking through the procedure
for getting information. Although most Acts, including the
FOI Bill have provision for oral requests, none of the laws
have a provision for acknowledging the request. The
apprehension that in the absence of a requirement to give
a receipt for the request, one would never see one’s application
again, or hear from the department, is very real, considering
the fate of even First Information Reports (FIRs) made at
the police stations. The requirement for charging fees is
likewise left vague and may be a cause for deterring potential
seekers of information if the fee is kept too high, as is the
case in Goa, where every request is to be accompanied by
a fee of a hundred rupees, an amount not easy to procure
for an individual. This kind of fee structure, by its very
nature, excludes a large section of the population from
trying to access information. There is no provision for
 The Constitutional and Legal Framework for Governance 87

waiver of fee for the poor or if the information is sought
in the public interest. Some laws, like the Rajasthan Act,
specifically mention that information will not be given if
the fee is not paid. Others, like the Delhi Act, prescribe a
minimum charge equivalent to ‘the cost of processing and
making available the information’.
Only Internal Appeals Against Denial
The procedure for accessing information in the FOI Bill
becomes even more cumbersome when it comes to appealing
decisions which refuse information. The Act gives only two
‘internal’ appeals, that is, appeals to government from its
own decision. The lack of an independent appeal mechanism,
which is internationally considered a sine qua non for a
disclosure law, strikes at the very heart of the enactment.
Moreover, one would be unable to move the civil courts as
laid down by Section 15. Ultimately, an aggrieved person
would have to move the High Court by way of writ
jurisdiction, which takes us back to the position prior to
the passing of the enactment. Read together with the lack
of penalties for wrongful disclosure, the law is completely
lacking in accountability provisions (which was the problem
to be addressed in the first place) and seems to put a
premium on refusals and delays.
The state laws, except for those in Tamil Nadu and
Maharashtra, are somewhat better in this regard. Goa
prescribes the Administrative Tribunal as an appellate
authority, while Rajasthan has the District Vigilance
Committees at the district level and the Civil Services
Appellate Tribunal as the authority. Delhi makes a provision
for appeals to the Public Grievances Commission. Most of
the states also set up a Council for Right to Information
as a monitoring and implementing body. This useful
provision is left out of the FOI Bill, although it was there
in the Bill as proposed by the Shourie Committee. A body
like this is essential in a scenario where the main hurdle in
information disclosure is mindset and attitudes. An overseeing
body could regulate and facilitate the training and orientation
of public personnel as well as monitor developments and
make suggestions on the operation of the law.
‘Whistleblowing’ Needs to be Protected
The new legislative regime for right to information must
take into account the protection of whistleblowers.
‘Whistleblowing’ is the exposure by an employee, who is
privy to certain information, of wrongdoing which can
harm the public interest. By its very nature, whistleblowing
is a risky thing for the person who reveals information. In
the context of India, as elsewhere, whistleblowing has often
been attended with serious consequences like transfers, even
suspension, or worse still, being kept on a job without actual
work being allocated. Whistleblowing, therefore, must be
protected in order to secure and protect from attack those
employees who follow their conscience, while at the same
time protecting uncalled for exposure on the pretext of
whistleblowing. Whistleblower protection laws have recently
been passed in the UK (The Public Interest Disclosure Act,
1999) and in South Africa (Protected Disclosures Act, 2000).
In the UK, whistleblowing has been exercised and protected
by the law in a range of cases from misappropriation of

Box 4.4.2
Information and Atomic Programmes

These are extracts from an interview 1 with Arjun Makhijani, president of The Institute for Energy and Environment Research,
a US based independent organization which has been given access to the official emission records, including raw data and results
of computer modelling of the Los Alamos National Laboratory, an equivalent of India’s Bhabha Atomic Research Centre (BARC).
The Indian government has to prove that it follows internationally recognized norms of radiation exposure to the workers and
the public. It must allow independent monitoring and make raw data available for scrutiny.... If the government claims that nuclear
plants are necessary, then it should acknowledge that there is a price to be paid in terms of health and environment risks. It has
to inform the public about the sacrifices involved. On the civilian side, the government has a cavalier attitude, dismissing the well
studied evidence about serious birth defects among children born around the Rawatbhata nuclear power plant in Rajasthan.... BARC
should disclose how much of the highly radioactive waste generated from the plutonium processing plant is stored there and in
what forms. It should also disclose the data from the discharge pipes leading into the bay, as also soil, groundwater and air readings....
if the waste is being taken elsewhere, then there are serious transportation risks involved and the analysis of such risks should be
made public.... The use of the Official Secrets Act in preventing public access to data relating to their health is an artifact of British
imperialism and should be abandoned. Moreover, there is no reason to keep health and environment data secret. US laws require
that such data be made public each year. In the case of the Clean Air Act, the data must be given to the Environment Protection
Agency each year, with the nuclear establishment swearing under penalty of perjury that the records are true and complete. In
addition, the US has a strong and justiciable freedom of Information Act.

1 Q&A, Times of India, 2001.

88 India Infrastructure Report 2002
funds in homes for the elderly, to exposing inflated expense
claims of a Managing Director of a US telecom company,
to questioning corporate data on which important
government decisions were to be based, to exposure of
operational irregularities in big companies.32 In the Indian
context of widespread corruption, and dressing up by
governments, public bodies, and corporates to give the
appearance of fairness, ‘whistleblower protection’ would be
vital.
GODBOLE’S CRITIQUE
Inspite of repeated endeavours from various quarters to
change the tone and tenor of the FOI Bill, it seems fated
to be passed in its present form. Madhav Godbole, former
Union Home Secretary has been following the developments
on the proposed legislation ever since the first draft came
out in the form of the ‘Shourie draft’. In his critique of the
Bill (Godbole 2000), Godbole points out various drawbacks
which go towards making the legislation weak. He points
out that the preamble itself does not make a clear and
unambiguous statement that the law is for enforcing a
fundamental right. He also suggests that the title of the Bill
should be changed from ‘Freedom of Information Bill’ to
‘Right to Information Bill’. The words ‘consistent with
public interest’ in the preamble also limit the application
of the Act, as ‘public interest’ is generally construed in
favour of government’s interpretation and may quite often
mean ‘government’s interest’. He further suggests that the
law should cover wider institutions than the ‘state’ in the
strict sense of the word. Non-governmental organizations
(NGOs), co-operative societies, trusts, professional bodies,
and even private companies should be brought within the
ambit of the law for disclosure of information. Godbole,
like others, also finds the exemption clauses too restrictive.
He is also vehemently opposed to class exemptions such as
all ‘cabinet papers’, and argues that the revelation of the
decision making process of the cabinet does not violate the
principle of collective responsibility. Moreover, the committee
of secretaries deals with a large number of issues to do with
economic management, economic policy, contracts, and
tenders, which need not be hidden from the public. Indeed,
disclosure would enhance responsibility and judicious
discharge of duties. He also makes out a strong case for
imposition of fines and penalties for delay in providing
information, especially where the information is denied
deliberately and knowingly.
In toto, the provisions of the Bill read together are a
severe disappointment, even leading to the stance from
some analysts that it is better to not have a law than to have
32 PCAW (2001).
a bad one, as the existing information regime would give
sufficient scope for exercising the right which already exists.33
Private Companies Could be Included
The provision of infrastructure, whether through public or
private bodies, invites an unequivocal application of the
right to information to all projects, as they pertain to basic
entitlements of the people. Godbole also makes a case for
extending the right to information legislation to private
companies too: ‘this is particularly relevant in the context
of the policies for economic liberalization adopted since the
early 1990s and the downsizing of the government envisaged
in the coming years. The excessive preoccupation with right
to information in the government domain alone is thus
misplaced and needs a correction’.
In the context of government either contracting out
basic services to private enterprise or adopting corporate
practices in providing infrastructure, the issue of the people’s
right to know takes on an even greater importance. Large
contracts must be transparently entered into, and there
should be transparency clauses instead of secrecy clauses
between government and private parties, in order that
dealings take place in an open and fair manner34 (Hindustan
Times, 2000).
Accepting the irrefutable logic for transparency and
sharing of information with stakeholders, private enterprise
and multilateral agencies seem to be taking positive action
towards implementing the right to information qua
stakeholders on their own initiative.
WORLD BANK’S PUSH FOR TRANSPARENCY
The World Bank, for instance, is taking concrete steps to
increase its ambit of information disclosure and is, even
now, in the process of reviewing and updating its Disclosure
Policy (World Bank 2000). The new proposal recognizes
that ‘an approach that goes beyond disclosure to focus on
the requirements of the development paradigm would
emphasise disseminating relevant information in client
countries’. It also emphasizes the need for upgrading of the
Bank’s Public Information Centres (PIC), for taking proactive
steps to publicize documents like Environment Impact
Assessment (EIA) reports in the local language, and engage
in actual consultation which goes beyond mere form. It
33 See Rajeev Dhavan, ‘Information Now’, Public Interest Legal
Support and Research Centre, New Delhi, mimeo.
34 Hearing a petition asking for a speedy trial of the Howaldtswerke
Deutsche Werft AG, Germany (HDW) submarine deals, the High
Court of Delhi asked the government to consider having a built-
in transparency clause while signing multi-crore multilateral contracts,
to avoid the incidence of kickbacks and moneylaundering, which are
a drain on the taxpayer.
 The Constitutional and Legal Framework for Governance 89
suggests the use of information technologies for further
outreach. However, the proposals stop short of disclosing
certain important documents like the Project Status Reports.
In its highway projects, the World Bank has been
attempting to build upon the policy of openness and
consultations. Although the Strategic Options Study (SOS)
for highway projects is prepared on the basis of secondary
data, the feasibility study, which consists of looking at
indicators as well an economic analysis of all options, is a
more consultative process. In the highway project for the
Allahabad Bypass, for instance, public consultations on all
five options had been carried out. The stakeholders had
been informed through advertisements in local newspapers,
through the village panchayats and through the district
administration. The final choice for the alignment was
based on these consultations. Even during the detailed
preparation, information was also exchanged between the
project authorities and the people, which influenced the
design of the project, and the consultation process was
completed by sharing the details of the final project with
the public. After this, EIA and Rehabilitation Action Plan
(RAP) and other policies concerning the rehabilitation of
the people were placed in the public domain. This is surely
a mark of the changing times, when compared to the total
lack of information in the Sardar Sarovar Project (SSP) on
the Narmada ten years ago.
USING THE RIGHT TO INFORMATION
The right to information is only as good as the use to which
it is put. And continuous and extensive gives meaning to
the information made available. In the US, the Freedom of
Information Act has been used creatively to dig into official
actions in the sphere of drug manufacture, defence,
environment pollution, and hazards of nuclear waste. In
Japan, the Act has been used to disclose cases of bloated
expenses of officials of the ministry of foreign affairs or
‘financial meetings’ in fictitious restaurants. Health ministries
have revealed the additives to drugs with harmful side effects
and urban local bodies have been forced to disclose their
minutes of meetings. The plea that disclosure would ‘hamper’
the work could not be invoked unless it was supported by
substantial proof. Interestingly, in the area of proactive
disclosure, some Japanese prefectures (local governments)
have gone so far as to publicize the next year’s budget,
especially the expected expenditure and inviting citizens’
suggestions. This is in contrast to governments’ usual stance
of keeping all aspects of budgets under close wraps on the
pretext that the economy will all but fall if anything is given
away before the appointed hour. Minutes of meetings in
which competing bidders bid for the construction of a
museum building have been disclosed. In Korea, information
disclosure on economic restructuring has been sought by
NGOs and the law is being reviewed to accommodate these
requests.
THE MKSS EXPERIENCE
Indian experience thus far reveals the potency of the right
to information in equipping the common person to access
information for his possible betterment. The Mazdoor Kisaan
Shakti Sangathan (MKSS) have pioneered the call for the
right to information from the lowest rung of the hierarchy
of both governance, and citizenry––the neglected and poverty
ridden villages of India. In using the right to information,
the MKSS have evolved a novel method of holding
government agents accountable for the fraud perpetrated on
the masses in the name of ‘development’. The siphoning of
huge amounts of development money intended for developing
infrastructure like roads, bridges, water tanks, wells, school
buildings, etc. has been brought to light by accessing
information from government’s own records and juxtaposing
it with the physical reality on the ground. Thus, lakhs of
rupees have been ‘spent’ on paper in purchase of material
and in payment of wages for construction of ‘invisible’ and
non-existent works. The exposure of these documents to the
common people who are supposed to have been the
beneficiaries of these works or employment schemes has
started a virtual movement for accountability, simply
articulated as ‘humaara paisa, humaara hisaab’ ––our money,
our account. Several years of struggle to get access to
information, despite the barrage of resistance from the gram
sewaks (clerical staff of the panchayats) right upto the Chief
Ministers, has finally begun to concretize into a recognition
on the part of both the movement and the government that
the process needs to be institutionalized and the right to
information cannot be demanded or used merely on the
basis of continuous mobilization and informal ‘audits’ by
the people. The first victory for the movement was to get
a notification under the Panchayat Act that records of all
panchayat expenditure could be inspected. The second step
was to get a right of photocopying. In 2000, the state of
Rajasthan passed a Right to Information Act, which can
perhaps be said to be a case of one step forward and two
steps backward. For, although the government assured the
civil society groups that the development of the law would
be a participatory process, the final form of the law left
many of the demands unfulfilled in the law.
The MKSS’ methodology has been an evolving one, but
since its core is very simple, it can, and has, been adapted
to different circumstances with some variation. Harsh
Mander, a senior bureaucrat and active proponent of the
right, has culled out the basics of the methodology of ‘social
audit’ and explained the process for the use of right to
information by citizens’ groups (Mander and Joshi 1999).
90 India Infrastructure Report 2002
Besides the kind of ‘social audit’ of the type practised by
the MKSS35 and other people’s groups, people can use the
right to information to monitor the processes of the formal
governmental audit and insist on adoption in India of the
universally followed practice that audit cannot be satisfied
unless local ratepayers are given a hearing and their objections
taken on record. Even now, for central government schemes,
audit of public works have to be placed before the gram
4.5 COMMUNITY PARTICIPATION MAKES A DIFFERENCE:
WATER AND SANITATION PROJECTS IN RURAL INDIA
An important factor contributing to the effectiveness of
infrastructure projects is the network of organizations and
procedures through which the community (intended
beneficiaries) participate in the project at different stages.
An approach based on participation by the community
takes note of the fact that a substantial portion of the
knowledge needed to design and operate a project resides
in the community, and this knowledge is crucial for the
eventual success of the projects. Besides knowledge, the
deeper involvement of community members can highlight
possible errors of design and lead to their correction. Bhatt,
Manikutty and Mavalankar (1996) studied the factors that
facilitate or inhibit community participation (CP) in water
and sanitation projects in five states in India, namely Gujarat,
Maharashtra, Rajasthan, Karnataka, and Kerala. They also
assessed how this participation or lack of it affected the
outcomes and functioning of these projects.
In all the states studied, the water and sanitation projects
were funded by bilateral agencies and incorporated
community participation as a mandatory feature. The
technologies used varied among the projects: regional piped
water supply schemes (Gujarat, Maharashtra, and Kerala);
local piped water supply (mini water) schemes (Karnataka);
and hand pumps (Karnataka and Rajasthan). At the time
of the study (1995), all these projects, except Maharashtra,
were in the operation and maintenance (O&M) phase for
quite some time (at least five years), but in Maharashtra, the
construction phase was not over. The projects were managed
in the O&M phase by the State Water Board (Gujarat), local
bodies (Karnataka and Rajasthan), and local water institutions
in combination with the State Water Board (Kerala).
In each of the states, about 12 to 15 villagers were
selected (except in Kerala where 27 ‘wards’36 were studied).
35 For a brief description, see Joshi (2000) and Mander and Joshi
(1999).
36 Wards in Kerala have about 2500 people, and about 10 wards
form a panchayat.
sabhas and completion certificates can be given only after this.
The important factor in the creative use of the right to
information will be the pressure that stakeholders are able
to exert on the institutions that have been hitherto closed
and which are in no hurry to open up, legal provisions
notwithstanding. The entire exercise will reflect not only on
how money is being used, but also on an equally important
aspect of how discretion is being exercised.
S. Manikutty
In each village, about the five per cent of the village
population was interviewed, with a minimum of ten and
a maximum of 50 persons in each village. It was ensured
that 50 per cent of the respondents were women.
A community participation index was developed that
would measure the level of participation of each village.
Essentially, the community participation was based on
intensity (typically measured by the proportions of people)
participating in meetings, discussions, decision making,
community census, making contributions in cash, kind,
and labour, to the project, and in involvement of the daily
operations of the facilities. Table 4.5.1 gives the value of CP
index for the states covered.
Table 4.5.1
Community Participation Index in Certain States
State CP Index
(scale of 0–3)
Kerala 1.80
Maharashtra1 1.80
Rajasthan 1.50
Karnataka 1.45
Gujarat 1.10
Notes: All differences, except that between Kerala and Maharashtra,
were statistically significant.
1 In Maharashtra, CP was measured only in the planning and
construction phases.
FINDINGS
Creation of an institutional structure for participation
at different stages is important
The institutional structure created to elicit and sustain
community participation varied among the states studied,
and this affected the projects. In Gujarat, though village
level water committees called pani panchayats were formed,
 The Constitutional and Legal Framework for Governance 91
the State Water Board, which was the implementation agency,
took little interest in organizing meetings of these committees,
or even in listening to their views. Even the role and status
of pani panchayats and their relationship with the Water
Board were not defined. Thus, the views of the community
were not taken into account in the project planning and
design.
This led to poor utilization of facilitates by the villagers,
especially in the case of sanitation. We give here two specific
instances. During our study, it was reported that more than
50 per cent of the latrines that were built were not used
by the people, since their location in the house made it
difficult especially for women to use them. These latrines
were converted into store places shortly after they were
constructed. In the case of water, the needs of migrating
population and their cattle (the needs of cattle were very
high) were not taken into account during planning, since
the planners missed out this segment altogether. This led
to repeated instances of breaking of the pipes by the migrant
population to obtain water.
In Maharashtra, the institutions to elicit and sustain CP
were slow to develop. The Zilla Parishads or ZPs (the district
councils) were given the responsibility to develop pani
panchayats but they proved to be totally unequal to the task.
An outside educational institution (the Tata Institute of Social
Sciences, Mumbai (TISS)) was brought in and this agency
set up participatory institutions during the planning and
early construction phases (the project was still in this phase
at the time of our study). TISS tried to train the officials of
ZPs, but with no great success (Manikutty 1998: p. 383).
In Rajasthan, an NGO, the People’s Education and
Development Organization (PEDO), was an intermediary
agency entrusted with the planning, design, and construction
of facilities (hand pumps and latrines). This NGO had an
ideological belief in CP, and it went to great lengths to
consult the villagers. It set up an exclusive project organization
for this project, and developed participatory mechanisms.
It insisted on the people attending meetings, ensured
attendance by women, and made it clear that the community
was entirely responsible for all the decisions, and saw itself
only as a facilitator.
Through a programme of education and training, the
villagers were made aware of the implications of decisions,
so that better decisions could be made. PEDO insisted that
all disputes were to be sorted out by the community members
themselves, and PEDO refused to give any decision by itself.
These meetings, however, were not made into an institutional
mechanism, so that once the construction phase was over,
and PEDO handed over the facilities to the village panchayats,
the participation stopped completely.
In Karnataka, the community members were involved in
the location of hand pumps. A crucial role was played by
the Project Advisory Group (PAG), a group consisting of
members from the Karnataka government and DANIDA
(Danish International Development Assistance), the bilateral
funding agency. The Project Advisory Group was created
solely for this project, and this agency put in place a system
of participatory rural appraisal (PRA) for location of facilities
and for identifying the beneficiaries eligible for different
levels of subsidy for latrines. There was, however, lack of
clarity regarding how the participation could be sustained
once the construction phase was over and PAG was wound
up.
The community participation in the planning, design,
and construction phase was fairly good, mainly with regard
to location decisions. However, there were no local
institutions set up to continue the participation at the
O&M stage; in fact even in the construction phase,
participation was minimal. The project became another
traditionally administered project by the Zilla Parishads
(district councils).
Kerala incorporated CP in its project plan and developed
a very sound institutional structure to attain and sustain
participation. A special organization called socio-economic
units (SEUs) was created that was under the Kerala Water
Authority (KWA) that implemented this (piped water)
scheme, but was funded by the donor agencies. Socio-
economic units had, as their personnel, social scientists who
were in charge of development of local participatory
institutions. In each village, Ward Water Committees
(WWCs) were formed that would be totally responsible for
the decisions on the location of water stand posts, health
training, and awareness building. Water committee meetings
were conducted by the villagers themselves, but SEUs
monitored the frequency of the meetings and gave advice
when needed. It insisted on regular attendance by the
community members; those who did not attend a stipulated
number of meetings were excluded from the latrine project.
This was justified on the ground that health education was
also a part of the project, and hence those who did not learn
better health habits were not likely to reap the full benefits
from the project. In the construction phase, WWCs were
responsible for mobilizing labour contribution (mainly but
not solely, for latrine construction), settling disputes, and,
to some extent, keeping liaison with engineers of KWA
(SEUs also acted as the liaison agent). In the O&M stage,
WWCs were responsible for reporting faults, following up
the repairs, and doing some (minor) repairs themselves
through training and paying a local person. Their roles as
well as how their roles differed from those of the other
agencies involved were made clear. This was the most
elaborate and sustainable institutional structure among all
the projects studied.
92 India Infrastructure Report 2002
Institutional Arrangements for Interfacing with
Community Members
Different mechanisms were used to interface with the
community in the different projects. This closely followed
the development of the basic institutions themselves. In
Gujarat, the only mechanism used was large group meetings
with the communities. This was also done in a lackadaisical
manner which conveyed the impression that the Water
Board was not serious about these meetings. An institution
for holding consultations with the villagers on an ongoing
basis was not set up at all.
In Maharashtra, Rajasthan, and Kerala, a variety of
interfacing mechanisms were employed: small group
meetings, informal discussions with villagers, training of
local people as volunteers in health related information
dissemination and involvement in location decisions. In
Rajasthan and Kerala, people were trained in proper use of
facilities and their upkeep and maintenance. In Kerala, they
were also trained in systematically recording faults, reporting
them, following them up, and doing quite a lot of repairs
themselves. A number of income generation activities such
as chlorination of wells were also put in place, which not
only provided an income to these people, but also improved
the health consciousness of the community members.
In Karnataka, there were community meetings and
participatory rural appraisal (PRA) sessions to determine
the places to locate hand pumps, to decide on who would
be eligible for latrine subsidies, and to work out the training
sessions in health awareness. Continuous feedback was also
obtained from the community regarding the facilities and
their use.
These mechanisms led to an active and institutionalized
interaction with the community by the Zilla Parishads. But
these mechanisms were still limited in their scope. Besides,
as the onus of running these participatory institutions was
left to Zilla Parishads, which had no traditions or expertise
to conduct these exercises, and they fell into disuse.
Interfacing with Existing Local Institutions
Our study shows that existing local institutions could be
made use of in W&S projects, provided that these local
institutions are strong and are functioning in a reasonable
way. Not all the projects did or could interface with these
institutions. In Gujarat, there were little contacts with the
local institutions. In Karnataka, there were fairly well
functioning democratic Zilla Parishads earlier, but these had
been dismantled by the government about four years prior
to the study. Only the executive wing (consisting of
government officials) remained. There were no democratic
institutions to which the project institutions could relate
and interface with, although the government machinery of
the Zilla Parishads was there. Hence the effort was either
through a small and inadequate PAG (which was not
intended or equipped to take up these responsibilities) or
through government officials who had no interest in
participation by the community.
In Maharashtra, there was an attempt by TISS to involve
the Zilla Parishads. The attempt was only moderately
successful, due to the limited capacity of TISS to train up
the needed personnel and the unenthusiastic people from
ZP who were to be trained.
In Rajasthan, again, no attempt was made by PEDO to
build on the existing local institutions. The result was that
after PEDO withdrew from the project (after the
construction phase), there was no mechanism at all for the
community to interface with the local institutions.
In Kerala, we see the most effective interface between
local institutions and project institutions. Kerala had a well
functioning panchayat system. SEUs were organized at three
levels: the state level unit; one for each of the three zones–
–northern, central, and southern; and at all village
panchayats. The SEU at the state level was a unit of KWA
and also developed close linkages with other bodies such as
the Ministry of Rural Development. The socio-economic
units at the zonal level developed links with the district level
bodies. Panchayat Water Committees were formed at the
panchayat level and consisted of all the elected panchayat
members and representatives of local organizations. At the
ward level, Ward Water Committees (WWCs) were formed.
The elected ward member to the panchayat was the chair-
person of a WWC, and there were representatives from local
grassroot organizations and social workers in the area. At
least two of these representatives had to be women.
This structure ensured that the WWCs would be the
main grass-root unit for generating and sustaining
participation. The higher level committees served to deal
with problems that could not be dealt with at the ward level.
The presence of elected members and the insistence by
SEUs on regular and open meetings in which decisions were
taken, ensured that potential conflicts could be resolved
efficiently. The political clout of panchayat members could
be brought to bear upon KWA to expedite construction and
ensure satisfactory maintenance.
IMPACT ON PROJECT OUTCOMES
Our concern was not with CP per se but its influence on
project outcomes. Hence, we measured the outcomes of the
five projects along different dimensions such as technological
outcomes, health outcomes, satisfaction of beneficiaries, use
of the facilities provided by the project, etc. We found that
due to a number of other factors affecting outcomes, a
direct correlation of outcomes to CP did not yield any
 The Constitutional and Legal Framework for Governance 93

results. For example, the percentage of facilities working
depended on the technology of the projects (hand pumps,
for example, were more prone to breakdowns than water
taps from a piped water supply). The satisfaction of users
depended on how badly they needed the services to begin
with, and changes in habits depended on the initial levels
of literacy.
Hence we studied two projects, both piped water schemes,
in adjoining districts in Kerala, both with similar terrain and
with similar demographic and hydrological characteristics as
well. Two villages, one in each of the two project areas, were
studied. The two villages studied were within five kilometers
of one another, although they belonged to different districts.
One of the districts was in the project earlier studied and
had significant CP while the other was delivered by the
KWA in the traditional manner with no involvement from
community. In terms of outcomes, the two projects were
strikingly different, as may be seen from Table 4.5.2.
In the village with CP, supplied water quality was not
only perceived to be better, but was indeed actually so, as
we checked out ourselves. Respondents in the Project II
village stated that the pipes in many places had rusted but
no corrective measures were taken. On the other hand, in
Project I, the respondents stated they had got the pipes
replaced whenever there was a problem.
In the Project II village, there were no records anywhere
in the community to show how many taps were out of
order; while in the Project I village, there was not only such
a record, but also records of the follow up. The involvement
of community members can also be seen from the responses
to the question of responsibility if taps went defective. The
typical response of the villagers in Project I was: ‘It is our
responsibility. Any of us going to the town would follow
it up’, whereas in Project II, the typical response was: ‘It is
KWA’s responsibility to keep the taps working. It is not our
job to follow it up’.
The projects aimed at supplying treated, safe drinking
water as a means of improving the health habits. But Project
I had a programme of health education, in which the
community members not only attended, but also contributed
by mobilizing community members to attend classes and
conducting classes themselves. Some were trained in the
chlorination of wells so that this traditional source also
would be safe for drinking. The Project II village had no
such programmes. In Table 4.5.2, we note the differences
in the usage of the treated water from the source as being
much higher than in Project II, in which the community
members continued to use also the traditional sources. These
continued to be unsafe due to lack of any chlorination
programes.

Table 4.5.2
Outcomes With and Without CP
(percentage)
Project I Project II
in village with CP in village without CP

Perception of quality of water: 1 ‘Satisfactory’: 40 ‘Brackish’: 25

‘Good’ : 60 ‘Muddy’: 25
‘Unclean’: 50
Percentage of taps working2 92 74
Respondents using only piped water for drinking* 39 25
Respondents using only piped water for cooking* 40 27
Respondents’ perception of responsibility for keeping the
area near the stand posts clean
Those who use it* 26 48
Government** 9 26
Caretaker3 23 0
Responsibility to set right faults 66 18
The community members2 0 63
The agency (‘We shall not take any action’)2 34 19
No response/do not know**
Initiative taken in the past to report defects2 95 0
Per cent of respondents satisfied with the project2 75 30
Per cent of respondents dissatisfied with the project2 10 40
1 In both villages, 80 people were interviewed. Figures in percentages.
2 denotes the difference being significant at 0.01 level; * at 0.05 level; ** at 0.1 level.
3 The difference was mainly due to non-existence of a caretaker and hence not statistically tested.
Source: Manikutty (1997).
94 India Infrastructure Report 2002
The project I village had, from the very beginning, insisted
upon the community members taking responsibility for not
only keeping the stand posts in working condition, but also
keeping the surrounding areas clean. The Project II village
did nothing of the kind. The appearance of stand posts in
the two project areas studied was strikingly different: while
the stand posts in Project I area were scrupulously clean
(kept clean by the community members), those in the
Project II areas by and large presented a pathetic appearance,
with the surrounding areas filthy and unhygienic. When
questioned, the community members in the Project II areas
did not feel it was their problem.
The Project I village evolved participatory mechanisms at
every stage. Further, it also put in place an institutional
structure to make the participation effective and sustainable,
through building a set of institutions and devising institutional
mechanisms and processes, as we have seen. The Project II
village, on the other hand, saw the project as a purely
technological exercise of building pipes and stand posts, and
no other institution except the engineering department of the
government was involved. The difference in the outcomes
studied above are striking, and serves to underline the role
community participation plays in infrastructure projects.
Application To Other Infrastructure Projects
The lessons learned with regard to the W&S projects may
be applicable in other infrastructure projects as well. For
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example, the problem of locating a village telephone is
conceptually similar to locating a water tap. More important
is the notion that an appropriate institutional structure is
needed to implement infrastructure. For example, formation
of users committees, with strong incentives for people to
take part in their decision making, linking them with existing
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overemphasized. Though lip service is being paid to the
development of institutions such as gram panchayats, the
fact seems to be that there is really no commitment on the
part of the top, either in the political or bureaucratic system,
to make these institutions meaningful and effective37.
CONCLUSION
Considerable knowledge resides in the communities and it is
necessary to build on this knowledge. Otherwise, vital inputs
may get mixed out. Commitment from communities is also
essential for the sustainability of projects. They help to reduce
monitoring, supervision, and maintenance costs besides
ensuring appropriate design. However, participation cannot
be taken for granted. It will not come about through statements
of intent in project documents. It will come about and will
be sustainable only if appropriate institutions like empowered
panchayats and others are built or allowed to exist.
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37 See for instance, Nanavaty (2000) in the IIR 2001, Section
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Chapter 2 in this report.
 The Constitutional and Legal Framework for Governance 95
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