Today there is a common opinion shared between government, society and industry that infrastructure is very crucial for achieving growth in an economy. Despite announcing an open door policy, India is still ranked among the bottommost countries in the World Competitiveness Report. This is mainly because of lack of infrastructure facilities, which are critical bottlenecks adversely affecting the growth expectations in the Indian economy post-liberalisation.It is commonly accepted that availability of adequate infrastructure facilities is vital for the acceleration of economic development of any country.Traditionally, government has been aware of this and has accorded high budgetary outlays for roads, highways, telecom and ports so as to enhance and induce growth. Of late, stress is being laid on investments in social infrastructure such as sanitation, medical, education and housing which not only enhances the overall growth but also raises the standard of living of the masses which directly reflects in increased labour productivity.
Infrastructure development is colossal in nature. As the economy expands its growth boundaries, it increases the investment requirements for infrastructure by leaps and bounds. Infrastructure services are often monopolistic in nature as investments required are huge and gestation periods of the projects are long. That is why the public sector is the dominant contributor here.
Many of the projects are affected by externalities to a large extent and heavily depend on user charges for recouping the costs.
Despite achieving progress in all sectors, India is not able to reap maximum potential today because of lack of infrastructure facilities. The government has announced an open-door policy but this is not sufficient. What is actually required is practical implementation of these policies.
Bureaucratic delays and red-tapism in clearance make projects unviable in the long-run and this amounts to overruns in time and interest costs. These make the infrastructure projects look unprofitable.
Despite liberalised policies being announced for foreign direct investment in infrastructure, a look at the figures will show that although India has the potential and is viewed as a best investment destination the funds are practically drying up.
This is mainly due to the non-existence of single-window clearance and long paperwork clearances involved that deter the foreign investors from coming in.
Despite the South East Asian economies having gone through a severe currency crisis, foreign investments in infrastructure are still higher there compared to India. Conscious efforts by the government to attract foreign investment and providing decision-making authority at grounds levels have helped these countries achieve higher growth rates despite having weak fundamentals.
Today, despite having strong fundamentals India is losing out on investments. The sole reason: poor quality infrastructure. In the future, as the government‘s financial situation does not seem very strong, it will have to go out and woo the private players in a bid to achieve high growth projections. It is only the private sector that will be able to fund infrastructure in the future. If no incentives are provided, it will become a very difficult task in the future and India’s credibility will be at stake.