ECONOMY

1. SUNDUS KHAN
PGDM SEM 2
ROLL NO: 012
INDIAN ECONOMY & POLICY
Role Of Infrastructure in Indian Economy
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 labour 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 investigate 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

2. the national highway. They help induce external investment and generate
economies.
Infrastructure is composed of the following components.
• Power and the materials used to generate it, such as coal and oil;
• Roads and transportation by road.
• Rail transport.
• Communication, particularly in the field of telecommunications.
• Ports and airports, and
• Irrigation is a critical component of agriculture's infrastructure.
Importance of Infrastructure
• Inclusive growth: It should be emphasised that good infrastructure is
essential not only for faster economic growth but also for inclusive
growth. As a result of inclusive growth, poverty will be alleviated, and
income disparity will be reduced in the country.
• Industrial Development: Micro, small, and medium enterprises
(MSME) are dispersed throughout the economy, and their production
and growth necessitate access to high-quality, dependable
infrastructure services to compete effectively with large-scale
enterprises.
o Many MSMEs often build some of their own infrastructures, such
as small power plants or generators. Furthermore, large-scale
businesses might locate themselves near ports and transportation
hubs where the necessary infrastructure is accessible.
• Agricultural development: Agricultural growth and the establishment of
agro-processing enterprises would be supported by the expansion of
infrastructure facilities such as irrigation, rural electrification,
highways, and road transport.
o These general infrastructure facilities will assist farmers and
processing industry owners in obtaining low-cost raw materials,
fertilisers, and other inputs, as well as assisting them in bringing
their products to markets in large towns and cities.
• Migration and standards of living: Rural infrastructure expansion will
provide continued growth of employment in agriculture and small-scale
rural enterprises, as well as prosperity in rural areas, ensuring inclusive
growth.

3. o Furthermore, this will aid in preventing a large outflow of rural
people to metropolitan regions, which will result in urban
congestion, the creation of slums, and severe housing scarcity.
• Trade: The availability of high-quality infrastructure boosts the
economy's productivity while lowering business costs. Furthermore,
appropriate infrastructure aids in the expansion of trade not just within a
country by upgrading transportation facilities, but also promotes
international trade by strengthening ports and airports.
o According to World Bank estimates, developing countries invested
roughly equivalent to 20% each year in new infrastructure—
transport, power, water, sanitation, telecommunications, irrigation
and so on.
• Investment: They also provide market price stability. The mobility of
labour and capital inside and out of the economy is assured by economic
infrastructure. Infrastructures support many job creation and employment
prospects. This will encourage investments to flow into the economy.
• National Defence: They also play an important part in national defence.
Development of military and defence infrastructure is crucial for national
defence. The development of border roads infrastructure is also very
important.
• Government Revenue: Transportation, communication, and
telecommunication infrastructure help to shatter the country's economic
isolation. They provide the government with a significant and valuable
source of revenue. The growth of economic infrastructure will inevitably
lead to the growth of economic trade.
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 i.e.. 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

4. 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 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 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.

5. • Increasing direct investment from international markets 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 private investments for infrastructural projects
aimed at economic growth. This also meant opening this market to international
investors.
Infrastructure is important for the country's faster economic growth and
poverty reduction. For the Indian economy to integrate with other economies
across the world, appropriate infrastructure in the shape of roads and railways,
ports, power, and airports, as well as their efficient operation, is required.
SIGNIFICANCE OF ECONOMIC INFRASTRUCTURE
According to Dr V. K. R. V. Rao, “The link between infrastructure and
development is not a once for all affairs. It is a continuous process and progress
in development has to be preceded, accompanied and followed by progress in
infrastructure, if we are to fulfil our declared objectives of a self-accelerating
process of economic development”.
Discussed below are some of the most critical significances of economic
infrastructure and its impact on the economy.
• The smooth functioning of the economy. Infrastructural facilities are
very necessary and vital for the smooth functioning of the economy. They

6. are like wheels of development without which the economy will not be
able to function properly.
• Development of agriculture. The development of agriculture, to a
considerable extent, depends on the adequate expansion and development
of irrigation, credit, transport, power, marketing, training, and education.
It also depends on the improvement of research and development and
other such facilities.
• Development of industry. Industrial production requires not only
machinery and equipment but also requires the following. Energy, skilled
manpower, management, banking, insurance, and transportation services
are crucial. These activities and facilities will directly lead to the
development of the industrial sector of the economy.
• Promotion of investment. Infrastructural development is a pre-condition
got increasing economic investments. Those areas with the sound
infrastructural base may succeed in attracting even more capital for
investment.
• Improvement in productivity. Infrastructural development such as
transportation facilities and education increase the productivity.
Development of science and technology is also important in improving
the economic productivity. Moreover, research and development also
play a critical role in economic improvement.
• Employee generation. Infrastructures play a crucial role in the
generation of employment opportunities. They improve mobility,
efficiency, and productivity of labour. Moreover, larger investment,
development of industry and agriculture create all the more employment
opportunities.
Some of the secondary but essential significance of the economic
infrastructure are as follows.
• Development of backward regions. The development of backward
regions and the removal of regional imbalances is yet another significant
contribution of infrastructural facilities. The lack of infrastructural
facilities in the backward regions will act as a constraint on the
development of those regions.
• Social change. Infrastructural facilities will also act as an instrument of
social changes. Development of industries, transport facilities and
education will change the outlook of people. Apart from these, even

7. science, technology and growth of towns and cities will lead to a changed
economic outlook.
• The growth of GDP. There exists a very close relationship between
spending for infrastructure and GDP growth. Studies reveal that 1%
growth in the stock of infrastructure often associates with 1% growth in
per capita GDP.
• All round development/Overall development. Infrastructural
development is important not only for economic growth but also for the
overall development. The all-round development of the country and
economy is crucial. Infrastructural facilities are also necessary for
technological innovation. Along with technological innovation, economic
infrastructural facilities are also important for the eradicating poverty and
enhancing globalization.
IMPORTANCE OF ECONOMIC INFRASTRUCTURE
Economic infrastructure is the nerve centre of the economic system. It plays an
important role in the development of not only the economy but of the
civilization as well. It is a public utility service which gives place and time
utility to goods and services. They link production, distribution centres and the
end consumers as well. Therefore, infrastructures bring together the elements of
the economic system.
To conclude, let us discuss some of the prime importance of infrastructures.
i. They help in the development of the market and all the elements within.
ii. It also facilitates large-scale production for the purpose of smooth
functioning of the economy.
iii. They result in the territorial division of labour which is great.
iv. They also ensure price stability in the market.
v. Economic infrastructure ensures the mobility of labour and capital
within/from the economy.
vi. It results in the overall growth of towns and cities.
vii. Infrastructures provide for a lot of employment generation and
employment opportunities.
viii. They also play a crucial role in national defence activities.

8. ix. Infrastructures in the economy directly result in the unity of various
economic components.
x. The economy and the nation will be able to meet any emergencies that
arise.
xi. It creates a place and time utility.
xii. Infrastructural development plays a vital role in the development of
agriculture and industry.
xiii. Infrastructure like transportation, communication and telecommunication
breaks any economic isolation that prevails in the country.
xiv. They are a great and rich source of revenue to the Government.
xv. The development of economic infrastructure will directly result in the
development of economic trade.
Infrastructure plays a crucial role in the economic development of India. A
well-developed infrastructure is essential for the smooth functioning of various
industries and businesses, which in turn drives economic growth. The following
are some of the ways in which infrastructure impacts the Indian economy:
Connectivity: Good infrastructure enables better connectivity between different
regions of the country. This leads to increased trade and commerce, which in
turn creates job opportunities and generates revenue.
Industrial growth: Infrastructure such as roads, railways, ports, airports, and
power supply facilities play a significant role in the growth of industries. They
facilitate the smooth transportation of goods and raw materials, which is
essential for the growth of industries.
Foreign investment: A well-developed infrastructure is attractive to foreign
investors who are looking to invest in India. Good infrastructure reduces the
cost of doing business, which makes India a more attractive investment
destination.
Employment generation: Infrastructure projects require a large workforce,
which leads to the creation of employment opportunities. This, in turn, boosts
the purchasing power of people, leading to increased consumption and
economic growth.
Poverty reduction: better infrastructure improves the quality of life for people in
rural areas, leading to poverty reduction. Good infrastructure such as roads,

9. electricity, and water supply facilities lead to increased access to markets,
education, and healthcare, which further contributes to poverty reduction.
In conclusion, infrastructure plays a vital role in the economic development of
India. A well-developed infrastructure is essential for creating a conducive
environment for business growth and attracting investment, which is crucial for
sustaining economic growth and development.