Lack of roads or their poor quality is a stumbling block for over 70% firms across all size classes while paucity of electricity is a problem for more than 50% firms that hire more than 100 employees.
Connectivity, in the form of high-quality roads, has the potential to catalyse small firms’ growth and spur job creation across different economic geographies, says a new study by the IDFC Institute.
Lack of roads or their poor quality is a stumbling block for over 70% firms across all size classes while paucity of electricity is a problem for more than 50% firms that hire more than 100 employees. The number of firms stating that water supply is a problem is similar across all size classes while around 21% firms, belonging to the highest-size class, report railways to be a problem.
“We do not find too much variation among firms, across different sizes, in terms of the infrastructure problems they face,” the study noted.
Using data from a primary survey of 2,500 enterprises across 18 districts (semi-urban areas), the study found that there could be substantial employment generation following cost-saving measures across sectors if roads, electricity, water supply and railways services improved.
On employment elasticity · the effect of 1% increase in cost-saving associated with infrastructure improvement on percentage change in employment – it found that employment elasticities are highest in the services region followed by the industrial region. “We estimate that for every 10% increase in cost-saving due to improvement/provision of roads, 5.6% more jobs can be created (in services region),” it said. For firms in the industrial region, the employment elasticity associated with cost-savings due to provision of water supply is the highest. For every 10% increase in cost-saving here, 4.3% more jobs will be created.