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PLANNING COMMISSION Working Paper No. 2/2006-PC LESSONS OF GOVRNMENT FAILURE: PUBLIC GOODS PROVISION AND QUALITY OF PUBLIC INVESTMENT Arvind Virmani( FEBRUARY 2006 CONTENTS Page No. 1 INTRODUCTION 1 2 LESSONS OF INTERVENTION 2 3 SUB-PHASES OF INDIAN SOCIALISM 5 4 ECONOMETRIC RESULTS 10 5 BACK TO BASICS 12 5.1 Focus Govt Attention Resources 13 5.2 Public Goods Services 14 5.3 Quasi-Public Goods Services 16 5.4 Notorious Bureaucracy 17 6 PRIVATE GOODS AND SERVICES 17 6.1 Infrastructure development 17 7 CONCLUSIONS 19 8 REFERENCES 20 TABLES Table 1: Comparative Economic Performance During Two Development Phases 5 Table 2: Comparative Performance in Sub-phases of Indian Socialism 6 Table 3: Comparative Performance During Sub-Phases of Market Reform 10 Table 4: Refocusing Government Expenditures And Administration 15  INTRODUCTION Virmani (2004c) statistically defines two major phases of economic growth in India’s post-independence history. These are associated with different policy regimes, which can be termed the ‘Indian version of Socialism (IVS)’ or simply ‘Indian Socialism’ and ‘Experiments in Market Reform (EMR).’ The turning point occurred around 1980-81. Each of these two regimes was associated with a set of economic policies. Virmani (2005) shows that in the 55 year economic history of India several conventionally assumed drivers of growth such as agriculture and public investment have not had a significant effect on growth. In this paper we focus on government investment and expenditure policies. Going beyond the growth experience, Virmani(2005c) also tries to relate the policy experience to the issues of aggregate poverty, income distribution and hunger at an aggregate level. The broad theme that emerges from the analysis and which is the focus of the current paper is that the failures on this front, apart from the indirect effects of growth, are linked directly to the fai