Infrastructure Spending Key To Revive The Fledging Economy
BUSINESS ECONOMICS|September 1-15, 2019
“You and I come by road or rail, but economists come by infrastructure,” Margaret Thatcher, Britain’s longest-serving prime minister and the first woman elected to that office had observed while highlighting the role of infrastructure in a nation’s life.
Tushar K. Mahanti

For economists rail and roads are not just ways to move around but are parts of infrastructure and vehicles of growth.

This ironic observation rings particularly true when applied to India today. India needs to expand its infrastructure facilities in the form of road and railway transport system, ports, power, airports, communication system, health and education.

Infrastructure is the basic requirement of economic development. It does not directly produce goods and services but facilitates production in primary, secondary and tertiary economic activities by creating positive external economies. The level of economic development in any country directly depends on the development of infrastructure.

Lee (2011) claims in a study that “Without adequate infrastructure, modern commerce characterised by production specialisation and exchange across markets would grind to a halt." Economic globalisation would not take place without the reduction in communication and transportation costs brought about by the progress achieved in the development of infrastructure within and across countries.

In Indian planning, high priority was given to the development of infrastructure and a huge amount of fund was allocated in different plans for building various infrastructural facilities. In the first seven plans, more than half of the total plan outlay was devoted to the development of infrastructure.

But in recent times, the old paradigm of infrastructure being a public sector monopoly is under duress due to fiscal constraints and technological innovations. Limits on budgetary allocations and public debt and the dismantling of the allocated system of credit have catalysed the encouragement of private entry in infrastructure. The onus of building basic infrastructure, however, still lies largely with the government.

Government’s recent initiatives to improve infrastructure

In her maiden Budget, Finance Minister (FM) Nirmala Sitharaman has done exactly that. She has given a massive push to the infrastructure sector by allocating 4.56 lakh crore ($63.20 billion). Her budget speech emphasised the importance of infrastructure creation and connectivity across rural and urban India.

This included taking forward programmes and services across various key sub-sectors through existing programmes like Bharatmala, Sagarmala, Pradhan Mantri Gram Sadak Yojana, Dedicated Freight Corridors, Jal Marg Vikas and UDAN, as well as a focus on newer themes and reforms across segments like Electric Vehicles (EVs) and charging infrastructure, aircraft financing and leasing, Maintenance Repair and Overhaul (MRO) of commercial aircraft, transformation of discoms etc.

FM has announced a number of steps to scale up the country’s infrastructure, including supplementing and expanding 1,25,000 km of rural roads under the Pradhan Mantri Gram Sadak Yojana (PMGSY) at a cost of 80,250 crore and creating a national highways grid.

The Budget also proposes investment of 50 lakh crore in expanding railways infrastructure by 2030 as well as substantial investments for roadways upgradation and connectivity. The government’s emphasis on investing 20 lakh crore every year in infrastructure development will help the growth of key infrastructure industries including steel and cement.

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