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.
  1. Manufacturing
  • Key to reducing logistic cost (approx 14% of GDP).
  1. 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.

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