Development A ‘Work In Progress’. Benefits Accrue For Decades
Our ambition of equitable and sustainable high growth is largely dependent on, and driven by, the quality of infrastructure. India is plagued with an inefficient, inadequate infrastructure that has been, and is incapable of, supporting a high growth economy.
India has come a long way from those days of policymaking dueling with the perception that something ought to be done and a serious attempt to do it. And yet, it is cursed with the most inadequate infrastructure.
Enabling infrastructure serves as a bedrock to economic development; the relationshiplies in the enabling, facilitating and delivery of service.
Not only is infrastructure a long-term multiplier, but it is also equally a remedy and stimulus for a slowing economy. Infrastructure promotes economic growth (forward linkages); growth in turn makes demands on infrastructure. The two-way relationship is self-sustaining.
*Infrastructure contributes a high proportion of economic ‘value add’
Infrastructure affects growth through several supply and demand-side channels. It removes productivity constraints, reduces cost, enhances competitiveness. Micro small and medium enterprises (MSMEs) – the growth engines and the largest employers – benefit even more from infrastructure enablers. Power, logistics, IT, communication network etc. are key to scaling up and competitiveness.
Rural development, which is key to equity, opportunity, and mobility, is largely dependent on infrastructure. The forward-backward linkages supplement rural economy, rebalance growth and elevate living conditions. A ‘road to the village’ is empowering. Other human development indicators bloom too.
Inadequate rural infrastructure erodes 40 per cent value from farm produce, perpetuating several other outcomes. The manufacturing sector suffers and struggles with capacity constraints. It hurts scale, demolishes competitiveness. The lack of infrastructure in rural India makes it difficult to transport agricultural products from farms to consumers. A bridge connects areas that previously would not have shared resources and economies. A Crux meta-analysis highlights that the infrastructure deficit is compounded by the lack of integrated and holistic framework.
We spend less than five per cent of the GDP on Infrastructure. The study highlights that despite the significant and widespread infrastructure investments created, the government needs to invest about $200 billion annually for the next five years just to bridge the infrastructure deficit.
The government has neither the resources nor the capacity to solely carry the burden of infrastructure creation; and will tire out. It must lead the investment cycle and demonstrate equally its ability to execute it. It must both attract and incentivise the private sector by creating a robust framework that supports and enables symbiotic public-private partnership. However, it must not abdicate its responsibility, particularly for long-gestation, low-yield infrastructure.
*‘Pick & lift’ the private partners along the way
Infrastructure spending catalyses the environment for private sector spending and catalyses and supports demand creation, triggering a virtuous ‘asset’ cycle.
The study highlights that every rupee invested in well-designed, robust infrastructure projects raises economic activity by three. A one per cent growth in the futuristic and interconnected infrastructure stock results in GDP growth of about two per cent, and a four multiplier. And that in less developed states, particularly in northern India, the impact is even bigger and more meaningful.
Infrastructure investment needs judicious planning and robust implementation. While the size of investment is critical, the character, timing and the ‘integration and linkages’ are equally so. They often determine the extent and scale of impact.
The government must be mindful of the fact that infrastructure projects normally take a few quarters to get off the ground. Implementation lags, and dents short-term benefits of the assets being created.
*Poor infrastructure costs us about 6 per cent of GDP. Other indicators diminish
It is easy to see the link between infrastructure and economic development; history and recent studies have plenty of lessons. Smaller states like Delhi, Haryana and Gujarat attract more FDI, provide more meaningful job opportunities than the whole of UP. Similarly, Hyderabad has emerged as the software citadel because it created hard infrastructure and ‘invested’ equally in soft infrastructure.
Growth outcomes demonstrate that hard infrastructure like airports, road density network, logistics and power plants have resulted in increased trade flows.Geographies lacking basic infrastructures like skill, logistics, governance, ‘network’ and tributaries (raw material and marketing network) lag in the development index.In the port cities the creation of harbours and barges linked to logistics networks, has enhanced international trade and economic growth.
The phenomenon of badly planned (poor linkages) projects, project delays and ‘incompletes’, cost overruns, is value depreciating. They hurt the ecosystem. Over a sixth of all government ‘sponsored’ projects are never monetised. An equal number are ‘delayed. Cost overruns and ‘drags’ are common, even inevitable, due to a systematic frailty and institutional weakness. Completing on-going projects will trigger a stimulus and add value.
The government must act and behave like an equal partner. It doesn’t. The public-private partnership is unequal and beset with mutual mistrust. Partnerships fall apart; several fail, because the government is indifferent and behaves like the ‘big brother’. It lacks the partnership ethos. Goals are invariably misaligned, intents nonlinear, resulting in rumpled execution. Lack of capacity of the project owners (bureaucracy) hasn’t helped.
The largest ten cities, also the economic hubs home to a tenth of its people, delivering over half of the nation’s GDP, needs an infrastructure boost of Rs 40 lakh crores to sustain growth. Traditionally more attention is given to hard infrastructure. The soft infrastructure that enhances health, education, ease of living, well-being, is often underestimated and sometimes ignored. Investment in human capital, democracy, rule of law, judicial and administrative reforms, catalyse potential. The soft infrastructure is equally a magnet that attracts investment.
* The government can’t do it alone. Needs help
Our infrastructure creation policy must constitute a broad set of principles that address the concept holistically. It should adopt a robust, yet innovative implementation framework, supported by investment in digital supervision, and holistic monitoring. It must revamp its procurement processes and adopt a transparent expenditure milieu. Similarly, the government needs to augment capacity, upgrade capabilities, and strengthen its institutions to both design and deliver. And above all, it needs to reorient its mind-set towards public-private partnership.
Infrastructure creation is truly transformational. The Prime Minister has brought it to the forefront of the development ecosystem. That is equally defining.
It will influence our lives and elevate ‘ease of living’.
