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Role of Infrastructure in Development and Its Impact

It is now well recognized that a country’s development is strongly linked to its infrastructure strength. Let us see the role of infrastructure in a country’s development.

Role of Infrastructure in Development

It is now well recognized that a country’s development is strongly linked to its infrastructure strength. Infrastructure helps determine a country’s ability to expand trade, cope with population growth, reduce poverty and a host of other factors that define economic and human development. Good infrastructure raises productivity and lowers production cost, but must also expand fast enough to accommodate growth. The precise links between infrastructure and development have been subject to extensive debate. The link between infrastructure and economic growth has been studied extensively in literature, the World Bank report (1994) of the World Bank for instance. The results show that infrastructure development can have a significant impact on the economic growth. For low-income countries basic infrastructure such as water, irrigation and to a lesser extent transportation are more important. As the economies mature into a middle-income category, their share of power and telecommunications in the infrastructure and investment increases. An estimate however shows that a 1% increase in infrastructure stock is positively associated with a corresponding growth in GDP across countries.

Infrastructure is a necessary but not a sufficient condition for growth. Adequate complements of other resources must be present as well. In developing countries like India, infrastructure development and financing has largely been the prerogative of the government. Since infrastructure is typically a natural monopoly, the government considered it necessary to keep control of the same, in public interest. The success and failure of infrastructure to meet the needs of the people is largely a story of the government’s performance.

In the case of India, the government has taken great strides in improving the infrastructure stock of the nation since independence. However, when compared to developed countries we still have a long way to go. For instance, per capita power consumption in India is a meagre 282 KWH compared to 18,117 KWH for Canada. The situation has worsened in the 90s with frequent revisions being made to the eighth plan document owing to the governments inability to bear the cost of infrastructure anymore.
The simple truth is that public money is no longer sufficient to meet the burgeoning needs of the nation in line with its economic aspirations. Reluctantly, therefore the government has to throw open the doors to private participation in infrastructure.

Impact of Infrastructure on External Trade and Production
Reliable and adequate quantity of infrastructure is a key factor in the ability of countries to compete globally. In particular, the competition for new export markets is specially dependant on high quality infrastructure. According to studies, increased globalisation of the world trade has been not only due to the liberalization of trade policy but also due to the major advances in the communication, transport and technologies.

There is an increasing trend not only in terms of greater globalisation of trade but also in terms of globalization of production. It is possible for companies located in different parts of the globe to produce components. In the recent years India has been used as a base for sourcing by a host of companies such as Sony, Toyota, ABB and the like for their raw materials as well as for components. To be able to fulfil the requirements of sourcing MNCs world-class infrastructure facilities including appropriate logistical support and multi-modal transport facilities are essential.

Infrastructure faculties are critical for the modernization and diversification of production. A good system of EDI involving telecommunications and computer networking is essential for efficient operations. In addition to sourcing, off shore software design, engineering and development is possible, thanks to the advances made in the global market. Thus developing countries can leap frog into hi-tech areas with the help of good infrastructure facilities.

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