An Overview of Infrastructure and Economic Development in India
For any kind of economic growth, the basic investment needs to be infrastructural development. Without this, there can be no scope for any economy progressing beyond the traditional model. It is important to understand how big of a role infrastructural growth can play in accelerating economic development, particularly for countries such as India.
India has shown very promising results in investments in infrastructure, due to the vast resources both in labor and capital format. Therefore, there has been a steady growth in industrial and business infrastructure in India that has been giving significant returns and contributing to the economic growth of the country.
One of the key drivers for the Indian economy is the Infrastructure Sector. To create world-class infrastructure in the country it is crucial to look into India's overall development in respect to how the government helps in the growth of this sector and the way in which it ensures time-bound creation. This infrastructure includes bridges, dams, roads, power, and urban infrastructure development. According to World Banks, Logistics Performance Index India ranked 44 out of all the countries in the world. In 2019, it ranked 2nd in the Agility Emerging Markets Logistics Index.
What is Infrastructure Development?
Infrastructure provides the most basic facilities that help serve different economic activities and thereby help in the facilitation of the growth of the country, development of the country, education, communication, transport, banking and insurance, health, technology. The example just provided are some of the basic needs that are required to fuel the growth of the economy. For the economy, these do not produce services or goods for the economy but help in inducing the production of the industry, agriculture, and trade by creating an external economy. The best examples of economic infrastructure are the railway line or the national highway. They help induce external investment and generate economies.
Infrastructure and Development
For the basic development of the most basic goods in the economy, it is required as it does not help in the direct production of any goods or services but it does help in the facilitation of the various goods and services in different sectors of the economy ie. the primary, secondary and tertiary sectors. It is a fact that the level of economic development is dependent on the infrastructure development of the country. If we are to look at the most developed countries in the world it is easily seen that there is a tremendous amount of growth in terms of economic and social infrastructure.
With communication and transport, there has been revolutionary progress in these countries. The financial sector in these countries is also doing well because of the best planned and organized banking and insurance. In terms of technology and science, there is a tremendous amount of progress as well. But in counties like India, we do not have such high standards of qualitative infrastructure and because of this, the level of economic development is slow and low.
Infrastructure in Indian Economy
To facilitate production and investment in the economy we need the best infrastructure in terms of quality and also should be sufficient. The bigger infrastructure facilities pave the way for bigger investments in that sector. But the problem with underdeveloped countries is the shortage of these facilities because of less economic development. The Indian economy was really behind by the time it got its independence with respect to the rest of the world. So once we got independent the first priority for the planners of the country was infrastructure development.
Out of the total planned expenditure about 50 percent was devoted to infrastructure. In the first plan, thirteen percent was spent on power, ten percent on flood and irrigation control, and twenty-seven percent was given to transport and communication. Because of all the infrastructure development we have done since independence, we have caught up with the rest of the world and the country has become one of the most promising countries in terms of development and growth.
Public-Private Partnership and Infrastructure
As the government focuses on the vitality of infrastructure in terms of growth and development it is at the same time cutting down the investment in the infrastructure sector. In recent years, the Public-private partnership is gaining a lot of momentum and an economic survey found the PPP projects to be highly impactful for the country. The survey talks about how India is getting a lot of foreign direct investments and also it attracts a lot of private capital to take on a lot of infrastructure projects. The PPP has also found ways to cut down on irrelevant expenditures and make infrastructure development more efficient.
The Public-Private Partnerships can help in sharing various risks, cost recovery, accountability, and also help in infrastructure management. The various steps the government has taken over the years are as follows-
Increasing tax rebates on debentures and shares so the flow of savings and infrastructural growth will be better oriented.
Increasing direct investment from international markets in order to get more capital and accelerate economic and infrastructural growth.
Tax holidays are remitted to companies and these can be used to maintain various infrastructural facilities. Among the long-term capital gains that are earned by any company, there are tax exemptions on interest and dividends.
The Infrastructure Development Finance Company was established by the government in 1997. This body authorized the capital of 5,000 crore rupees.
When did Private Infrastructure Investment Begin?
After independence, it was the job of the government of India to capitalize and process all investment with reference to structural and economic growth in the country. However, there was a certain limit to the investment that the government could provide, as well as the returns generated since there were many different back channels that allowed for corruption and malpractice in various forms. This is why the government opened up private investments for infrastructural projects aimed at economic growth. This also meant opening this market to international investors.
FAQs on Infrastructure and Economic Development in India: Explained
1. What is meant by infrastructure in economics, and what are its main categories?
In economics, infrastructure refers to the fundamental facilities and systems that serve as a support system for a country's economic and social activities. It does not directly produce goods but enables production across all sectors. The two main categories are:
- Economic Infrastructure: These are facilities directly associated with economic activity, such as energy (power plants), transportation (roads, railways, ports), and communication (telecom networks).
- Social Infrastructure: These are facilities that enhance human capital and improve the quality of life, which indirectly contributes to economic development. Examples include schools, colleges, hospitals, and sanitation facilities.
2. What is the specific role of infrastructure in the economic development of India?
Infrastructure plays a critical role in India's economic development by acting as a foundation for growth. A well-developed infrastructure boosts productivity in agriculture and industry, attracts foreign investment, creates large-scale employment opportunities, and improves the global competitiveness of the economy. It also enhances the quality of life for citizens by providing better access to markets, healthcare, and education, thereby facilitating a more inclusive growth pattern.
3. Why is infrastructure development considered a 'support system' for an economy?
Infrastructure is considered a 'support system' because it enables all other economic sectors to function effectively, much like a skeleton supports the human body. For example, a factory (secondary sector) cannot operate without a reliable supply of power and water. Similarly, a farm (primary sector) cannot prosper without roads and transport to move produce to markets. Therefore, infrastructure provides the essential framework upon which all production and services depend.
4. How does social infrastructure, like health and education, contribute to a country's economic growth?
Social infrastructure contributes to economic growth by improving the quality and productivity of the workforce, a concept known as human capital formation. A healthy population is more able to work consistently and efficiently. Similarly, an educated and skilled workforce is more innovative, adaptable, and capable of performing complex tasks. This leads to higher overall productivity, technological advancement, and sustained long-term economic development.
5. What is the importance of the Public-Private Partnership (PPP) model in developing India's infrastructure?
The Public-Private Partnership (PPP) model is crucial for India's infrastructure development because the government alone cannot meet the massive investment requirements. The significance of PPP lies in its ability to:
- Leverage private sector capital and operational efficiency.
- Share project risks between the public and private sectors.
- Introduce modern technology and management techniques.
- Ensure faster project completion and better service quality, helping to bridge the country's significant infrastructure gap.
6. What are the key challenges facing India's energy sector as a component of infrastructure?
India's energy sector, a critical part of its economic infrastructure, faces several key challenges. The most significant ones include:
- Insufficient Installed Capacity: The demand for power consistently outstrips the available supply, leading to shortages.
- Transmission and Distribution (T&D) Losses: A significant amount of electricity is lost due to technical issues and theft during transmission.
- Under-utilisation of Plants: Many power plants operate below their full capacity due to shortages of raw materials like coal and natural gas.
- Poor Financial Health: State electricity boards often suffer from financial losses, hindering their ability to invest in upgrades and maintenance.
7. In what ways can a lack of adequate infrastructure hinder India's progress?
A lack of adequate infrastructure can severely hinder India's progress by creating major bottlenecks in the economy. It leads to higher logistics and manufacturing costs, making Indian goods less competitive globally. It can also deter foreign direct investment, as businesses are reluctant to invest in regions with poor connectivity and unreliable power. Furthermore, it limits access to education and healthcare for a large part of the population, slowing down human development and perpetuating regional inequalities.
