Infrastructure is the key

Neglect of this crucial sector is disastrous

The sluggishness in India’s industrial growth continues unabated. Six core sectors — which constitute the country’s infrastructure — slowed to a 1.2 per cent growth in July 2001 from 6.1 per cent in the same month of last year. Their cumulative growth during April-July 2001 at 2.7 per cent shrank from 4.3 per cent in the same period last year. The slowdown in infrastructure has ominous implications for the long-term growth prospects of the economy. Coal output fell by 6.7 per cent in June 2001, while crude oil throughput was down by 7.5 per cent. There is some solace in a 4.2 per cent growth in electricity generation in July 2001, made possible mainly by a good growth in thermal power generation. Hydel power generation also improved a bit, but much depends on the progress of the monsoon for the tempo to be sustained in the coming months. It is as well to remember that cement has so far done well despite excess output and slow demand but steel is in a shambles—reflecting the overall slowdown in industrial growth.

The dismal performance of core sectors reflects a deep structural malaise embedded in economic policy making. Therefore, a serious rethink on policy towards infrastructure in the second generation reforms brooks no delay. It will be suicidal to make infrastructure play second fiddle as has been done in the first phase of reforms. A look at the comparative performance of core sectors in pre and post-reforms phases shows this well. During the reform period 1992-93 to 1999-00, the growth performance of the core sectors is nothing to write home about. While the private sector continues to shy away from investing in long-gestation, risky and uncertainty-ridden infrastructure projects, a squeeze in public investment in physical infrastructure and a substantial decline in the share of development expenditure in government’s total expenditure have worsened the plight of the sector as a whole. The resultant bottlenecks in supply have hampered growth over time. The continuing neglect of infrastructure will work against real assets formation and impair competitive efficiency. If there is one lesson we can learn from high growth Asian economies, it is that long-term sustainable growth is predicated on a strong physical infrastructure.