INFRASTRUCTURE INVESTMENT AND ECONOMIC DEVELOPMENT IN INDIA: AN EMPIRICAL EVALUATION

Abstract

Infrastructure is the backbone of economic activities and it contributes a significant role in overall nation’s development. Infrastructure not only supports economic function other than it helps in improving living standards of communities. There are various authors and economists done research in this sector but still its definition is not clear. Interestingly, Grimsey and Lewis (2002) said that there is no need of any definition of infrastructure, it can be easily identified and recognized by its services and facilities. Few of authors segregated infrastructure into two parts physical infrastructure and social infrastructure, physical infrastructure includes all the sectors and services provided by infrastructure which are directly contribute in production functions and directly helps a nations to become economically strong. On the other hand, social infrastructure directly assists in improving livelihood and helps in eradicating poverty. Physical infrastructure includes transportation, communication, irrigation, and power, and social infrastructure consist education, health, water and sanitation facilities and sewage systems. Both the types of infrastructure such as physical and social infrastructure are essentially well developed and maintained for the smooth production activities and higher living standards. A nation’s development measure by not only its building, roads, industries, railways etc, but it needs to measure the quality of life of people living in the country. Thus, only physical infrastructure is not necessary for an economy, but at the same time social infrastructure facilities are also equally important for a nation to expand its overall growth. Various authors have conducted research in this field and recognized a strong impact of infrastructure on economic development of a nation. Most of the studies focused on the contribution of physical infrastructure in economic development, very few researchers identified the significant role of social infrastructure in economic development. In context of India, very few studies empirically proved the relationship between both the infrastructure and economic development. Thus, the prime objective of this study is to find the relationship between both types of infrastructure such as physical and social infrastructure and economic development of India. Further the study also examines the linkage between investment in infrastructure sector and economic development of India. Study also analyses the trends and patterns of infrastructure level in India from 1991-2015. It also analyzes the investment status of central and state level in both physical and social infrastructure. Thus this study aims to address the following research questions: 1. What is the status of infrastructure sector in India? v 2. Is there any causal relation between infrastructure and Indian economic development? 3. What kind of causality exist between infrastructure (physical and social) and economic development in India? 4. What is the status of infrastructure investment in Indian infrastructure sector? 5. Does infrastructure investment have any causal relationship with the economic development of India? 6. What is the status of PPP in infrastructure sector in India? This study has planned in stepwise manner to achieve its objectives, development of new measure of long term relationship between infrastructure and economic development of India. First stage of the study analyses the status of both physical and social infrastructure in India for the period 1991-2015, further this stage analyses the central and state infrastructure investment in physical and social infrastructure sector in India for the period 1991-2015. Second stage examines the relationship of infrastructure and its investment with economic development of India. Third and last stage of the study describes the status of Public Private Partnership (PPP) projects in Indian infrastructure sectors and sub-sectors. For achieving the objectives of the study used time series analysis and techniques such as unit root test, co integration techniques and VECM model to find the long term causal behavior of the variables. In order to decide the causal directions among the study variable Granger Causality test has used for it. Findings of the study showed an essential relationship of infrastructure and infrastructure investment with economic development in India.