The multiplier effect of a well-developed infrastructure in an economy is well established. The intent of the Indian government for the creation of such infrastructure in the country can be seen in the recent announcements on investment in infrastructure sector and various structural policy initiatives in recent years. This certainly provides grounds for optimism about the progress of India’s infrastructure.
The quantum of investment that the government has envisaged for India is immense and will be evident only in the medium to long term. It would be pertinent, therefore, to track closely the particulars of the progress of the initiatives taken and take into account the outcomes. So where do we stand currently? A good starting point would be to compare the current status of India’s infrastructure with some selected countries.
India and the World
For comparison, we have considered two set of countries. The first set comprises developed economies such as the US, UK, Japan, Germany, Canada and France whose infrastructure has evolved over a period of time. For the purpose of analysis, we can refer to them as the Top Six. The other set of countries constitutes developing economies such as China, Brazil and Turkey, which are fair comparators to India today. When evaluating these comparisons, Infrastructure not only encompasses the physical aspect of the whole gamut of roads, railways, airports, seaports, power, sanitation and telecom, it also factors in the ‘quality aspect’, such as contribution of renewable energy to the overall energy pie. It has been evident that the availability and quality of infrastructure is more robust in countries which invest more in infrastructure.
There is a strong correlation between GDP per capita and the availability & quality of the infrastructure across countries. For example, the availability or quality of infrastructure in the “Top Six” countries is far better than other countries (chart 1). Clearly, India has a long way to go and some of the progress that we are making as a country has to be seen in that context.
India spends only US$120 per capita per year on infrastructure, which is one tenth of what the Top Six countries invest on average i.e. US$1,200. Furthermore, India’s focus on infrastructure, conventionally, has been skewed in favour of the two sectors, i.e. electricity and roads sector and thus have been inadequate to match the demand in the various other segments.
Chart 1: India vs Selected Countries
It would be a fair comparison to make that India’s allocation of resources have been relatively lower compared with the Top Six. Access to drinking water is 100% in Top Six as compared with approximately 88% in India. Access to electricity in terms of people connected to the grid in India is 79% relative to 100% for the top six, the average number of airports per hundred thousand kilometers in about 1 in India relative to about 6 in these countries (chart 2). Nevertheless, these comparisons only tell part of the story i.e. availability of infrastructure. The quality of infrastructure which is unequivocally important e.g. the extent of availability of pure and hygienic drinking water or uninterrupted access to electricity by households does not get reflected in the parameters that we, by and large, use to measure the performance of the indicators of infrastructure.
The importance of quality and reach of infrastructure can be seen when we evaluate investments in basic needs such as sanitation & water. The impact of infrastructure provisions like water and sanitation is much more profound than usually perceived. As per various studies by World Health Organization (WHO) and United Nations (UN), every US $1 invested on water & sanitation facilities gives returns of US$ 4-9 through health costs saved, deaths avoided, productivity enhanced, water supply protected, and other wider benefits like more productive education investments.
Chart 2: India vs Top Six
Efficiency of Investment in Infrastructure
India has made considerable investment in infrastructure and is well placed when compared to other selected countries as far as infrastructure investment as percentage to GDP is concerned (Chart 3). Nonetheless, as we measure the output relative to the input, i.e. in terms of availability & quality of infrastructure, India stands in the “high investment and low quality of infrastructure” zone compared to Top Six which has achieved high quality & availability with a lower investment.
Chart 3: Efficiency of Investment in Infrastructure: India vs other selected countries
Seen in this framework, India has a journey to traverse. Along with higher levels of investment, India will have to achieve higher quality of infrastructure output and gradually with economies of scale and efficiencies built into the system, achieve high quality infrastructure with comparatively lower investment.
India is strengthening its infrastructure base to establish itself as an economic powerhouse and the improvement has been visible. Some of the initiatives undertaken by the government so far has already helped India to improve on few global indices. In the past 1-2 years there has been an improvement of 30 points in Ease of Doing Business, 15 points in Global Competitiveness and 19 points in Logistics Performance over previous 1-2 years. With the right people and the right approach – a dedicated government and strong corporate leadership, along with focus on transparency, we are on the right path, but the road ahead is long.