The infrastructure is considered as a key determinant of the economic development of a nation. In this context, highlight the issues faced in infrastructure financing in India.

Infrastructure is the key to quality of public life and level of economic activity in a nation.

Characteristics (National statistical Commission):

1. Public good
2. High externality
3. Non tradability of output
4. High sunk cost

Key determinant of economic development:

1. Pillar of every sector.
2. Agriculture

• Storage, transport, marketing are core of the sector.
• Agriculture infrastructure fund of 1 lakh crore created recently.

3. Manufacturing

• Key to reducing logistic cost (approx 14% of GDP).

4. Service sector

• Crucial to promote sectoral expertise in technology such as telecom.

Determines market efficiencies:

1. E.g. Poor mechanization (less than 40%) and inadequate supply chain management are the primary causes of poor sectoral growth in agriculture.
2. Food processing industry – absence of cold storage facilities, etc.
3. Multiplier effect

• Promote employment, quality of public life, blue economy.
• E.g. Bharatmala Pariyojana, National infrastructure pipeline.

Issues faced:

1. Low financing options – over 50% dominated by Banks/ NBFC.
2. Low private sector participation.
3. Absence of robust bond market.

Why:

• High risk areas, high sunk cost and scale of investment.
• Poor and non uniform risk sharing framework.

Way forward:

• Focus on Bond markets such as Municipal bonds.
• Tools like monetization (National monetization plans are steps in right direction).
• National infrastructure pipeline proper utilisation.

Infrastructure holds the key to unlocking unbound potential of dynamic economy like India and reaching goal of $5 trillion economy.

Topics: GS-III: Indian Economy Issues Relating to Planning • GS-III: Economic Growth Development • GS-III: Infrastructure Energy Sector • GS-III: Infrastructure Ports Roads Airports Railways