Policy actions for developing the infrastructure sector: Learnings from the Indian experience

• Published date: 01 February 2023
• Author: Kewal Singh,Anoop Singh,Puneet Prakash
• Date: 01 February 2023
• DOI: http://doi.org/10.1002/pa.2837

RESEARCH ARTICLE

Policy actions for developing the infrastructure sector:

Learnings from the Indian experience

Kewal Singh

1

| Anoop Singh

2

| Puneet Prakash

3

1

Jindal School of Banking & Finance, O.P.

Jindal Global University, Sonipat, India

2

Centre for Energy Regulation, Department of

Industrial and Management Engineering, Indian

Institute of Technology Kanpur, Kanpur, India

3

Department of Finance and General Business,

Missouri State University, Springfield,

Missouri, USA

Correspondence

Kewal Singh, Jindal School of Banking &

Finance, O.P. Jindal Global University, Sonipat

131001, India.

kewal.singh@jgu.edu.in

The infrastructure sector is one of the major pillars for economic growth and devel-

opment of a country. The responsibility to develop this crucial sector is shifting away

from the public to the private sector. After the economic liberalization in 1991, India

opened the infrastructure sector, among many others, to private domestic and for-

eign investment. The shortage of electricity, the poor state of roads, and limited tele-

com access necessitated a stream of persistent reforms, which were expected to play

a significant role in the infrastructure sector's growth. Although some subsectors wit-

nessed success, others continued to face hurdles. The paper highlights the role of

infrastructure in socio-economic development through global literature. It also pre-

sents a story of infrastructure development in India since the inception of economic

liberalization. It highlights various challenges that discourage private sector invest-

ments, thus providing a rationale for policy initiatives by the government. The paper

also presents critical issues highlighted by multiple government committees over

nearly three decades and identifies residual issues that merit attention. The outcomes

of the paper are relevant in the context of developing and emerging economies.

KEYWORDS

government policies, infrastructure, investment, private sector, public sector, reforms

1|INFRASTRUCTURE AND SOCIO-

ECONOMIC DEVELOPMENT

The infrastructure sector is crucial to keep the wheels of economic

growth rolling. It acts as a catalyst to the industrial, manufacturing and

agricultural activities by reducing transaction costs and improving effi-

ciency. Growing urbanization and globalization is continuously leading

to enhanced demand for infrastructure. However, infrastructure pro-

jects require large capital investment, have a long gestation period

and involve multiple stakeholders. These sines qua non increase in the

infrastructure sector's complexity and differentiate it from other sec-

tors, namely, manufacturing, agricultural and industrial sectors.

Various studies show that infrastructure is essential to economic

growth and human development (Banerjee & Banik, 2014; Ghosh &

De, 1998,2004; Ianchovichina et al., 2013), alleviation of poverty

(Aggarwal, 2018; Datt & Ravallion, 2002; Nayyar, 2017), income

growth (Calder

on & Servén, 2014), increasing agriculture productivity

(Balakrishnan, 2017; Rao et al., 2006) and attracting private investors

(Lall, 1999). Socio-economic development also depends on the avail-

ability of quality infrastructure. Growth in human development indica-

tors has been linked to growth in the infrastructure sector

(ADB, 2012; Jose & Navaneetham, 2010; Sapkota, 2014).

Economic growth and development of developing countries are

constrained due to poor infrastructure (Ruiz Nunez & Wei, 2015) and

financial scarcity in the public sector. Private investors can develop

infrastructure to fill the gap (Nagaraj, 2017). Private sector investment

was slow to catch up in most developing countries (Doh &

Ramamurti, 2003) and was identified to make little contribution to

infrastructure investment (Straub, 2008). Since pricing infrastructure

services are difficult under nascent market and politico-economic con-

ditions, the government is suggested to provide budgetary support to

cover the gap (Kusharjanto & Kim, 2011) and play a lead role in infra-

structure development followed by the private sector (Nayyar, 2017).

The infrastructure sector, particularly those requiring large investment

such as electricity transmission and distribution network, oil and gas

pipeline network, water supplies and sanitation services, and so forth,

Received: 13 July 2021 Revised: 26 June 2022 Accepted: 29 June 2022

DOI: 10.1002/pa.2837

J Public Affairs. 2023;23:e2837. wileyonlinelibrary.com/journal/pa © 2022 John Wiley & Sons Ltd. 1of20

https://doi.org/10.1002/pa.2837

continue to exhibit a natural monology practice. Pricing for such ser-

vices including return to the investors are regulated either by the reg-

ulated independent authority or respective government bodies

(Beecher & Kihm, 2016; Rode & Fischbeck, 2019; Singh et al., 2022).

To sustain balanced economic growth, India needs to invest in

the infrastructure sector (Das et al., 2015; Shahbaz et al., 2017). Slow

economic growth has often been attributed to inadequate infrastruc-

ture (Aiyar, 2016). Rioja (2003), using four indicators for infrastructure

in seven Latin American countries,

1

showed that these countries are

paying penalties amounting to approximately 40% in terms of GDP

per capita by utilizing only 70% of their infrastructure effectively.

World Bank (2018) recommended that to compete with the world as

an exporter, India needs a world-class infrastructure that will help in

creating a manufacturing hub. India also needs to improve the infra-

structure sector as its current state is not very attractive compared to

other countries. In terms of investment through private participation

in infrastructure (PPI), India attracted lower investment than other

leading Asian economies (Figure A1 in Appendix A).

If India–an emerging economy wants to become a $5 trillion

economy by 2025: India needs aggressive growth in investment in the

infrastructure sector. It becomes imperative for the policymakers to

address the identified challenges for the infrastructure sector. This will

have a multiplier effect on the other sectors, thereby facilitating eco-

nomic growth, creating jobs and improving living standards across the

country.

This paper traces the sector-wise Indian infrastructure growth,

including energy, transportation, information and communication

technology (ICT) and water and sewerages, from 1991 to unravel vari-

ous phases of developments. Before discussing the foregoing, we

briefly describe our data collection and methodology. The paper then

goes on to identify multiple challenges faced by the infrastructure sec-

tor, especially those highlighted by numerous governmental commit-

tees set up for the sector. Towards this end, the paper discusses

initiatives taken by the government during the post-liberalization

period for this sector, followed by conclusions and policy

recommendations.

2|DATA COLLECTION AND

METHODOLOGY

The objective of this study is to chronologically document the journey

of the Indian infrastructure sector since its liberalization in 1991. In

doing so, we discuss various developments covering the issues faced

by the subsectors across time, recommendations by different commit-

tees to address these issues, and policy actions by the government

based on these recommendations all the way up to 2020. We selected

the 1991–2020 period to trace the march of India towards a market-

based economy that also witnessed various policy initiatives to open

the doors of the infrastructure sector for the private sector, including

the foreign players' participation.

To evaluate the private sector participation in infrastructure, we

proceed in three steps. First, we identify and review the relevant liter-

ature in a global context that emphasize the role of infrastructure in

socio-economic development and highlight issues that impede this

development. Here, the infrastructure sector covers energy, transport,

information technology, and water and sanitation sector. Second, we

have collected and analyzed infrastructure data on private and public

investment from the World Development Indicator (WDI) –World

bank's database for public and private infrastructure investment in

various countries. Section 3of the paper discusses and analyzes

investments in Indian infrastructure subsectors. We provide a sum-

mary of infrastructure investment requirements as projected by vari-

ous committees/studies (Section 4). Finally, in the third part of the

methodology, we analyze the sector-specific reports of various com-

mittees set up by the Indian government and other relevant studies

since 1990s. We further examine the issues and recommendations

identified therein for the growth of infrastructure sector.

2

In addition,

we also evaluate various policy initiatives in terms of their effective-

ness in addressing the aforesaid issues hindering the infrastructure

investment and projections across the sectors. The paper encapsu-

lates the overall experience of the Indian infrastructure sector for

three decades that can help the other countries in adopting policies

for further developing their infrastructure.

3|DEVELOPMENTS IN INDIAN

INFRASTRUCTURE: A SECTOR-WISE

SNAPSHOT

The critical infrastructure sectors include energy, transport, telecom-

munications and water and sanitation. The dynamics of sector-wise

growth have also been affected by sector-specific reforms (Patel &

Bhattacharya, 2010). To develop the infrastructure sector, India

opened the doors for private investors (Ahluwalia, 2002; Harris

et al., 2003; Kohli, 2006a), which broke the shackles that initially

reserved the sector for the public sector (Kotwal et al., 2011). Post-

liberalization, private investment grew (Aiyar, 2016; Kohli, 2006b)as

the focus to build utilities and infrastructure moved to the private sec-

tor (Chakrabarti, 2016; Nayyar, 2017). According to the World Bank

(2018), public investments in India have decreased, and private invest-

ment increased during 1971–2017, and especially after 1991.

Figures A2 and A3 (in Appendix A) show the yearly number of pro-

jects and investments in the infrastructure sector due to private par-

ticipation for around three decades since the inception of the

economic reforms of 1990. The following subsections specifically dis-

cuss sector-wise trends of PPI development during the post-

liberalization period.

1

Seven countries included in the study are: Argentina, Brazil, Chile, Colombia, Mexico, Peru,

and Venezuela. And the four indicators for infrastructure are: Power (total energy lost in the

system percentage of total output), Telecommunications (telephone line faults per 100 main

lines per year), Paved Roads (percentage of roads in pitiable conditions), and Water (losses in

percentage of total water provided).

2

These reports are available on the government's ministries and organizations' websites.

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