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Infrastructure and Economic Development in India

Last updated date: 04th Mar 2024
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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

1. How can economic growth be accelerated by infrastructural growth?

The basic component for the economic growth of a country is its infrastructure. This is because only when there is adequate infrastructure, will there be adequate usage of the same which will then generate economic growth in various forms. For example, a good network of railways and roads is a very important component of infrastructure for any country. When this is secured, a lot of other things automatically get easier, such as transportation of raw materials and finished goods, easier access to different parts of the country and so on, which will help in economic growth.

2. What is the main infrastructure in India?

Agriculture and industry are the backbones of infrastructural development in India. A huge part of India is engaged in agricultural ventures, and for them, infrastructure would mean better seeds, irrigation, harvesting facilities, markets for crops, and so on. The other half of India is engaged with industries, and for them, Infrastructure would mean capital investment, a steady supply of raw materials, enough power to generate projects, and so on. These components make up the basic infrastructure of any country, particularly developing countries.

3. What are the factors that prevent economic growth?

For India in particular, a number of factors have hampered economic growth in recent years. One of these is the huge population of the country. While this can act as a very good investment for labour, after a certain point the population begins to increase over the availability of resources for that population. This can lead to poverty and inequality. Another reason can be the declining investments in infrastructure projects due to diminishing returns, especially for certain sectors that are suffering continuous losses.

4. What are the points of distinction between economic growth and economic development?

These terms are often used interchangeably and that is not correct in the economic sense. This is because economic growth comes before economic development can. Economic development is not unidimensional and it depends not just on the economic prosperity of households, such as an increase in median income, it also depends on things such as the living standards of the people. It is possible for a country to have enough economic growth with no economic prosperity at all. Only when there has been economic growth, will there be economic development.

5. Economic developments are governed by which considerations?

While this is not clearly pointed out anywhere, it is generally believed that the components of economic development need to be broader and include more aspects since it also deals with human prosperity. This is why it includes human resources in the form of labour, physical capital which refers to the investment undertaken, natural resources that are present in the country, and technological development. As long as these areas are focused on simultaneously, there will be significant improvements in the overall economic development.

6. What are Some of the Benefits of PPP in Infrastructure and Development in the Country?

Capital can be leveraged in order to get larger private investments internationally and domestically, this also helps companies to get better infrastructure in place for the country. Within the private sector, a lot of methods are introduced to help save cost and be far more efficient by which more infrastructure can be put in the county. There are tax exemptions on various long-term capital gains for companies and also on interest and dividends.

7. What is the Definition of Infrastructure and What are its Economic Components?

Infrastructure development helps with various public works in a country and this includes roads, public buildings, and different utility lines. It is the substructure that is found underlying the network or foundation for providing services or goods for the country. It is the very basic services and facilities that can help the growth in the economy of the nation. The economic components are energy, transport, and communication.