Making sense of spending in Infrastructure

Damages from the flash floods in Mumbai on July 26 run into thousands of crores of rupees. Subsequently, a lot has been talked and written about the infrastructure in Mumbai, rather the lack of it. It would make an interesting study to compare the cost of infrastructure vis-à-vis' the cost of lack of infrastructure. For example, would a better drainage system have saved enough damage to property and business (apart from lives and livestock) so as to make an economic case for robust infrastructure?

Taking the idea further, traditionally, we decide projects on financial viability. Now, a broader concept of economic viability is picking up. This involves taking a holistic view of things by considering the life cycle costs, social externalities, etc. Concepts of carbon trading, green construction, etc. are, in fact, emanations of this only.

The hypothesis thus goes: Investing in better infrastructure has its gains in the reduced cost somewhere over the life of the asset. Just to make things a bit clearer, let's take the example of a flyover. It might not be possible (socital or practicability issues) to toll it and recover the cost expended by sponsor of the project. However, in the case when the sponsor is the Government - which incidentally also has the role of public welfare agent - it might make some sense to consider the savings in oil from the decongestion of roads, time people save and utilise it in their work thus contributing to the GDP and of course, improving the quality of life in general. Agreed, some of the conclusions are a bit far fetched, but this might not be so if we choose the example more carefully.

Now, the challenge is to devise a system that ensures that the person who saves oil from the flyover pays for it, at least partly, in some way rather than the tax payer who does not use it. It is all a matter of charging the cost to the right cost centre. If this does not happen, then it will be yet another social externality where one is paying for another's benefits.

PS: A friend once remarked, "When B-schools claim 100% placements, in reality only 20% get placed. Rest 80% get mis-placed."

Sad, but true

Placements in B-schools are geared towards optimizing the number and quality (!) of jobs. Considering the constraints and the stakes involved, it appears to be the most sensible thing to do. But is it an efficient process?

My belief is that it is not, for it does not match the interest and competencies of a student with his/her job profile. But then, that's practically impossible. Now why is it so?

One reason is the students themselves. Premier B-schools are interesting places. Best minds come there...all excited, but most of them have little idea of what they want to do in life. At best, they know what they don't want to do. But that’s how one moves on in life…and it’s perfectly fine.

The problem is, sometimes students don’t think for themselves, and just form opinions on what they hear. Sad, but true. Ask any freshman on campus about what s/he wants, and you will hear consult, i-banks. Ask what does an i-banker do, and chances are that they might not be able to speak more than 3 sentences about it. And still, that’s what they want to do in life. But can you blame them for that? May be, but to some extent only.

The issue is rooted further down in the Indian psyche. The reason for this is the same as for why does a person good in maths goes for engineering and not maths honours? It’s a question of social security rather insecurity. Money, still to a very large extent, determines what we like. Sad, but again true.

And on the placement day, call it peer pressure or influence or whatever...it so happens that most people end up thinking and behaving similarly. Which slot, what day and how much? That's all that seems to matter. It is not just stupid but criminal to look for a lower slot company when you have shortlists from higher slots. Media also doesn’t help by hyping salaries...almost making it impossible for a person to take a long term view of his/her career by ignoring the m-factor. Trust me, almost everyone buckles down.

In the end, a student lands up at some place while s/he is meant for some place else. Sad, but still true.