Abstract
It has been a well-accepted fact that there exists a strong relationship between infrastructure and economic growth. Like many other developing countries, lot of emphasis has been placed on the importance of investments in infrastructure for fostering economic growth in India. A state-wise analysis of five support infrastructure in India shows improvement in infrastructural facilities in 2014 as compared to 2007. Rural–urban gap is converging for most of the states, showing that the rural areas are catching up with their urban counterparts. However, the availability of infrastructure can be termed anything but inadequate. The infrastructural deficits can be met possibly through better management of publicly funded projects and greater role of private players. Given the resource crunch at government level, private financing of investment is simply a matter of necessity rather than a matter of choice. Therefore, this chapter argues for creation of an enabling environment and to facilitate the infusion of adequate private fund while keeping the interest of vulnerable sections in mind.
TopReview Of Relevant Literature
Both the academic literatures as well as the policy debates acknowledge that infrastructure development is one of major determinants of economic growth and can affect poverty and inequality, particularly in developing countries. Economic theory points out that direct investment in infrastructure stimulates production activities by (i) acting as a direct input into the production process, (ii) complementing the other inputs of the production process and (iii) stimulating factor accumulation through provision of human capital development facilities (Kumo, 2012). Further, the infrastructure investment reduces the transaction costs and trade costs and improves competiveness (Sahoo et al, 2010).
Growth theory provides the theoretical basis for understanding the impact of infrastructure on economic growth. Arrow and Kurz (1970) considered public capital as an input in the economy’s aggregate production function in the framework of Ramsey type exogenous growth models. Barro (1990) developed the endogenous growth version by assuming that government’s contribution to current production is driven by its flow of productive expenditure. Futagami, Morita and Shibata (1993) added private capital stock into the model. A key insight of the Barro (1990) framework is that increase in public capital stock improves the private sector productivity through positive but decreasing impact on marginal product of inputs that reduces cost of production inputs and increases the level of private production. Agenor and Moreno-Dodson (2006) showed that public infrastructure led increase in marginal productivity of private inputs improve the perceived rate of return on private capital which, in turn, may lead to increase in private sector demand for physical capital. They further showed that increase in public capital stock may crowd out private investment that may lead to decrease in private capital formation in the long run. Improvement in the labor productivity, owing to better access to infrastructural facilities, is another channel through which infrastructure indirectly influences economic growth. Several other positive externalities in the form of greater regional and international trade, higher inflow of foreign direct investment and prospect of higher profitability of domestic and foreign investment enhances investment ratios and thereby the per capita income (Dissou & Didic, 2013).
Key Terms in this Chapter
Indian States: This study has considered 18 major states and left the north-eastern (small and remotely located) states as well as the states with a large hill and forest cover.
Power: Power plays the key role in increasing productivity of agriculture and labor, improving health and education and helping in communication and therefore is considered to be indispensable for economic development.
Economic Growth: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The economic growth rate is calculated from data on GDP estimated by countries´ statistical agencies. Investment in social and physical infrastructure increases potential output for all goods and services in the country and thereby facilitates economic growth process.
PPP: In India, private investment in infrastructure has been gaining importance as a one of the ways to meet investment deficit. A strategy of higher private investment is encouraged through public private partnership (PPP). Apart from it’s gap filling utility, PPPs provide opportunities to exploit private sector efficiencies in public sector projects.
Infrastructure Development: Infrastructure is considered to be the key for promoting sustainable and inclusive economic growth. So a great deal of policy emphasis has been placed on infrastructure development for augmenting growth, productivity and quality of life of the citizens of the developing country.
Road: An effective road network is necessary not only for national integration but also for socio-economic development of a country.
Communication: Access to postal services can be considered as proxy for good communication system. Better access to postal services helps to transport mail and small packages to destinations around the world. Also it involves providing domestic and international postal services-receipt, transport and delivery of mail and so on which are very important for economic activities to take place.
Interstate Analysis: In spite of India’s progress in terms of economic development and growth, it has been observed that some states have performed better than the others in development front. Interstate analysis provides valuable insights on the set of contributing factors behind the uneven development performance of the states.
Housing: Shelter and quality of housing are important input for human development. Investments in shelter and housing not only expand and improve the stock of housing units but also the working and living environments and thereby facilitates economic development.