Infrastructure Is ‘Public Good’
Infrastructure is the backbone of the economy.
Correlation between infrastructure and sustainable growth is high, direct and a precursor. And yet, the growth correlation with infrastructure is amongst the least theorised area in development economy.
It leverages efforts of the industries, spurs productivity & efficiencies, value adding, triggering economic activities and creating opportunities. Relevant infrastructure enhances access by proving logistics, transport, and connectivity, enabling cost reduction, facilitating and even expanding production.
Infrastructure influences competitiveness
Infrastructure or the lack of it has a large bearing on the investment climate. It influences business locations, migration and ‘settlement’ decisions. Hyderabad is preferred to Patna, Pune to Lucknow. It enables development of regions and beyond.
A Crux insight across a clutch of policymakers, business leaders, social influencers and academicians explains that infrastructure is key determinant to growth and even competitiveness. The others determining growth factors are macroeconomic environment, quality of institutions, health & primary education. They are key to competitiveness. Technological readiness, demography and market size make up the rest of the determinants.
Growth feeds on infrastructure, fuels funding in turn
The study highlights that infrastructure enables, even contributes to poverty eradication and a definitive factor in creating additional jobs and increasing income. It generates more employment and entrepreneurial opportunities per rupee invested compared to any other sector.
Infrastructure ‘consumed’ by households serves as intermediate consumption item for firms. It boosts the efficiencies of the larger corporates, feeding the tributaries, nourishing the MSMEs and percolating the benefits of growth to everyone in the value chain.
There are several other intangible benefits. Infrastructure facilitates the ease of doing business, eases living, and makes it even better. Rural infrastructure fosters inclusive growth, poverty eradication too.
Over the last 2-decades the economy has peaked at lower productivity. Our manufacturing has suffered, and not globally competitive in spite of lower input cost. Similarly we fail our farmers, leaving them to the vagaries of nature. They continue to farm in the 20th century for the lack of agri infrastructure.
India cannot grow on twentieth century infrastructure
Robust infrastructure catalyses, and indeed drives growth, helps shift focus and reallocate resources to ‘abandoned’ areas. Similarly, productive assets enable ‘farm to the factories’. Connecting the markets to the consumers ‘nearshores’ production and homogenises the market. This helps in market penetration, increasing the market size. Robust infrastructure also enables investment to ‘move’ from resource-intensive to a high-income, high-yielding, and higher potential sectors.
While our engineers have created robust digital framework, entrepreneurs developed an efficient and low-cost digital infrastructure (mobile telephony, software, fin-tech), physical infrastructure has largely been ignored and under delivered. We spend less than 4% of GDP on infrastructure. A developed China spends 50% more.
While we go about investing in infrastructure the government must be equally mindful of the lethargic, even indifferent ecosystem that needs reengineered and reformed. It takes twice the cost, about thrice the time to implement projects compared to similar economies.
The National Infrastructure Pipeline (NIP) framework has only 21% contribution from the private sector, the balance split between the state and centre equally. India is yet to create the policy framework for the private sector to participate wholeheartedly in building infrastructure, leave alone funding it.
Partnership of ‘equals’
Infrastructures have long gestation period, cost, and significant externalities.
The government must change its mind-set, move beyond the PPP model, and develop symbiotic partnerships. Today the ‘lowest’ bidder takes all the risk, does all the work and the government pays ‘last’. Disputes around infrastructure contracts between the government and contractors often result in implementation delays and cost escalations.
Government bodies are compulsive litigants and sore losers. Partners recognise, reduce resolve disputes and deliver. This will need a mind-set change.
Infrastructure is ‘risk’ funding not because the projects are unviable, but the ecosystem just does not ‘enable’ delivery.
The PPP needs remodelling and must involve the private sector at the project envisioning stage itself.
Partnerships deliver because each contributes where the other lacks. Ideally, and in a cohesive partnership the private sector contributes expertise and capacity, while the government helps ease the financial burden and provides the ‘enablers’ (land acquisition, permissions). This synergetic relationship ensures higher impact and is sustainable.
Everyone loves ‘ribbon’ cutting
But before we launch new projects the government must ensure the completion of those underway. Completed projects are assets, and multipliers. Criticality of effective implementation cannot be overemphasized.
Our goal of the ‘5 trillion economy’ will largely be driven by how effectively we link the different elements of the economy. A Crux insight articulates that in an infra deficient economy, for every 25 percent increase in sustained and ‘effective’ public investment the real growth can increase by 2-3 percent over 10 years, with a 10% ‘value- add’.
Similarly, in an infrastructure starved and unorganised economy (low base) one lac crore investment has the potential to create over 2 crore direct jobs, another 10 indirect.
India does not need to look far. China’s three-decade meteoric growth is a consequence of its purposeful investment in infrastructure. It’s a lesson, and a model to emulate.
Build what we need. Utilise well
However, the government needs to be cautious. Investment in unproductive projects triggers a boom, but busts lurk nearby too. Investment in ‘delayed &pending’ projects is equally caustic resulting in over-leveraging, unstable financial markets, monetary expansion, inevitably economic fragility.
A Crux study is revealing. Out of the 1200 large and medium infrastructure projects a third are delayed, a fourth cost over-run. Many are on the slow burner, most ‘pending’ for over 5 years. Some will die. INR 79,000 crores are stuck.
Delays lead to unviable projects. The fall out of this is the emergence of ‘innovative’ project financing, crony capitalism. People suffer, particularly the ecosystem.
Prioritise action. Cost of inaction
Infrastructure is also the heart that fuses economic and societal goals by providing the basics like health, education, safe drinking water, electricity, connecting society through roads, inkling people through telecommunication. It’s a true multiplier.
The infrastructure deficit economies suffer the ignominy of stunted development. They lag. Several other societal parameters suffer, manifesting into a deprived ecosystem.
While the economy and society ‘experiences and pays’ for deficient infrastructure, the intangible costs are many times more, affecting the multiplier sufficiently.
Policymakers understand the priorities for action; the cost of inaction is only felt by the society. It is denied the benefits of inclusive growth and deprived of the basics.
