Infrastructure and Economic Growth

7/25/2019 Infrastructure and Economic Growth

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Nidhi Sarda 1521040

Nandkishore Pillai 1521038Naresh Sabani 1521055 Manmohan Kamble 1521025

Infrastructure andconomic !ro"th



#r$ %$ K$ &$ %$ &ao 'noted Indian economist( earl) 1*80s+

,-he link bet"een infrastructure and economic de.elo/ment is not a once andfor all aair$

It is a continuous /rocess and /roress in de.elo/ment has to be /receded(accom/anied( and follo"ed b) /roress in infrastructure( if "e are to fulll our

declared obecti.es of eneratin a selfacceleratin /rocess of economic

de.elo/ment$6

,-he link bet"een infrastructure and economic de.elo/ment isnot a once and for all aair$It is a continuous /rocess and /roress in de.elo/ment has to be/receded( accom/anied( and follo"ed b) /roress in

infrastructure( if "e are to fulll our declared obecti.es of eneratin a selfacceleratin /rocess of economic de.elo/ment$6



1 Introduction

In this report we examine the key driver of the economy, Infrastructure is the hallmark

of economic development as the mega structure of the nation’s overall wealth hinges

on it. But the fast growth of the Indian economy in recent years have placed stress on

physical infrastructure such as electricity, railways, roads, ports, airports, irrigation,

urban and rural water supply and sanitation, all of which already suffer from a

significant deficit. Infrastructure development will help create a better investment

picture. To develop infrastructure in the country the government is expected to review

issues of budgetary allocation, tariff policy, fiscal incentives, private sector

participation and public private partnerships. There are many issues that need to be

addressed in different infrastructural fields. To begin with, the gap between electricity

and demand is affecting both manufacturing and overall growth. Another concern is

the transport sector while road transport is the backbone of the Indian transport

infrastructure, it is inade!uate in terms of !uality, !uantity and collectivity. "urther

more civil aviation and ports desperately needs moderni#ation. It is expected that the public sector will continue to play vital role in building transport infrastructure.

$owever the resources they need are much larger than what the public sector can

provide.

2 Infrastructure in India

Ade!uate investment in infrastructure development is a prere!uisite for higher

economic growth. %ue to low investment in infrastructure development, India suffers

from a huge infrastructure deficit. The average infrastructure investment in Indiaduring the period &''()(*&* constituted +. per cent of the -ross %omestic roduct

/-%0 as against .1 per cent across countries like 2hina, Indonesia and 3ietnam.

"urther, as per the 4orld 5conomic "orum -lobal 2ompetitiveness 6eport (*&+,

India ranks 78 out of &++ countries in terms of infrastructure !uality with 9inade!uate

supply of infrastructure’ listed as the most difficult factor in doing business.

According to the report, India’s infrastructure rankings vary from 7+ in !uality of

roads to &&& in !uality of electricity supply.

3 Infrastructure Development in theEleventh Five Year Plan

The 5leventh lan /(**)(*&(0 laid considerable emphasis on increasing the

investment in physical infrastructure. The lan envisaged to increase the infrastructure

investment from about 8 per cent of -% during the Tenth lan to about ' per cent in

the terminal year /(*&&)&(0 of the 5leventh lan. "urther, the contribution of the

private sector in infrastructure investment was expected to rise from about (( per cent

in the Tenth lan to about 1* per cent in the 5leventh lan.

Infrastructure investment during the 5leventh lan is 6s.(1,+,1* crore /at current

prices0, which is (.7 times the investment of 6s.7,1,&8' crore reali#ed in the Tenthlan /(**()(**0. The actual investment in infrastructure as a percentage of -% in





5 ud!et 2"15

• A big push for infrastructure sector with a hefty *,*** crore increase in

investment, to pump the economy even though it means postponing by a year

to (*&)&7 achieving the stiff fiscal deficit target of 1 percent.

• The government has increased outlays on both the roads and the gross

budgetary support to the 6ailways by &+,*1& crore and &*,*8* crore,

respectively.

• The capital expenditure of the public sector units is expected to be 1,&,77'

crore, an increase of approximately 7*,7++ crore over 65 (*&+)&8, he said.

• The government also plans to establish a @ational Investment and

Infrastructure "und /@II"0, and find money to ensure an annual flow of (*,***

crore to it. This, he said, will enable the trust to raise debt and invest in e!uity

of infrastructure finance companies such as the I6"2 and @$B and thecompanies in turn can then leverage this extra e!uity manifold.

• To augment the power generation capacity in the country, five new ultra mega

power pro:ects each of +,*** 4 in the plug)and)play mode.

• itching for corporatisation of state)run ports in the country

• India has &( ma:or ports including andla, umbai, C@T, armugao, @ew

angalore, 2ochin, 2hennai, 3isakhapatnam, aradip and olkata which

handle ?& percent of the countryDs cargo.

• "or the roads sector, plans to connect each of the &,7,*** unconnected

habitations by all)weather roads.

•This will re!uire completing &,**,*** km of roads currently under construction plus sanctioning and building another &,**,*** km of roads.

• $e further said that the @ortheast region has been accorded priority in the

development process by two visits of rime inister and launch of important

infrastructure pro:ects.



# Pu$lic%Private Partnership -he e7/ression /ublic/ri.ate /artnershi/ is a "idel) used conce/t"orld o.er but is often not clearl) dened$ -here is no sinleacce/ted international denition of "hat a PPP is 9orld :ank(200;<$ -he PPP is dened as ,the transfer to the /ri.ate sector of in.estment /roects that traditionall) ha.e been e7ecuted ornanced b) the /ublic sector6 IM=( 2004<$ >n) arranement madebet"een a state authorit) and a /ri.ate /artner to /erform functions"ithin the mandate of the state authorit)( and in.ol.in dierentcombinations of desin( construction( o/erations and nance is

termed as Ireland?s PPP model$ In @K?s Pri.ate =inance Initiati.eP=I<( "here the /ublic sector /urchases ser.ices from the /ri.atesector under lonterm contracts is called as PPP /roram$ Ao"e.er(there are other forms of PPP used in the @K( includin "here the/ri.ate sector is introduced as a strateic /artner into a stateo"nedbusiness that /ro.ides a /ublic ser.ice$

-he PPP is sometimes referred to as a oint .enture in "hich ao.ernment ser.ice or /ri.ate business .enture is funded ando/erated throuh a /artnershi/ of o.ernment and one or more

/ri.ate sector com/anies$ -)/icall)( a /ri.ate sector consortiumforms a s/ecial com/an) called a s/ecial /ur/ose .ehicle SP%< tobuild and maintain the asset$ -he consortium is usuall) set u/ "ith acontractor( a maintenance com/an) and a lender$ It is the SP% thatsins the contract "ith the o.ernment and "ith subcontractors tobuild the facilit) and then maintain it$

-hus( the PPP combines the de.elo/ment of /ri.ate sector ca/italand sometimes( /ublic sector ca/ital to im/ro.e /ublic ser.ices orthe manaement of /ublic sector assets$ -he PPP ma) encom/assthe "hole s/ectrum of a//roaches from /ri.ate /artici/ation

throuh the contractin out of ser.ices and re.enue sharin/artnershi/ arranement to /ure nonrecourse /roect nance( "hile



sometime it ma) include onl) a narro" rane of /roect t)/e$ -hePPP has t"o im/ortant characteristics$ =irst( there is an em/hasis onser.ice /ro.ision as "ell as in.estment b) the /ri.ate sector$Second( sinicant risk is transferred from the !o.ernment to the/ri.ate sector$ -he PPP model is .er) Be7ible and discernible in

.ariet) of forms

& 'urrent status of Pu$lic%PrivatePartnership

ublic)rivate artnership would bridge the gap between investment and service

delivery in infrastructure. This would also re!uire more rules to be played by private

sectors and appropriate regulatory mechanism. It describes a government service or private business venture which is financed and operated through the partnership of

government and one or more private sector company. rovision of the public services

has conventionally been the domain of the government. 4ith the increase in the

population, urbanisation and other development taking place. The governments abiltiy

to ade!ualtely address the public needs through conventional source has been

deteriorating at an alarming rate. plays a vital role for infrastructure sector as

enchanced !uality and !uantity of infrastructure services is ac!uired and provides

value for the tax payer as well as wider benefits to the economy. In India the

pro:ects include urban infrastructure such as airport, ports and railways, roads, health,

water supply and sanitation and have extended their focus on schools also. 6ecently

both the central and the state government have successfully harnessed in roaddevelopment. 2urrently several private partnership initiatives are under implimentaion

across India. The scope of this initiative in healthcare services span from disease

survellience to bulk purchase and distribution of drugs, recruiting specialists for high

risk pregnancies, national disease control panel. ;ocial marketing adoption and

manangement of primary health centres, etc. The India database / department of

economic affairs and ministry of finance0

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Infrastructure and Economic Growth