Investment in infrastructure accelerates economic growth by fostering connectivity, enhancing productivity, and attracting investments. India’s experience underscores this, as strategic infrastructure development, such as in transportation and energy, has been pivotal for sustained economic expansion, job creation, and improved living standards, contributing to inclusive growth.
UPSC Mains General Studies Paper – 3 Mains 2021
UPSC Mains Civil Services IAS Exam Question Paper – 2021
Approach
- Start with a brief introduction of Infrastructure investments to economic growth.
- Mention the Benefits of investment in infrastructure to the context of the india.
- Explain the Investment in infrastructure is essential for more rapid and inclusive economic growth.
- Conclusion / way forward.
Answer
Introduction
- Infrastructure investments encompass “real assets” that are essential for everyday life, such as bridges, roads, highways, sewage systems, and energy infrastructure. These tangible assets play a critical role in a nation’s progress and development. Infrastructure investments are attractive to investors due to their non-cyclical nature, providing stable and predictable cash flows over time.India till now trend $3.8 trillion and need $ 4.5 trillion trend in Infrastructure investments.
Body
The Benefits of investment in infrastructure: Investment in infrastructure brings numerous benefits:
- Stable & Steady Cash Flows: Infrastructure investments often generate predictable cash flows due to their regulated and contracted revenue models. This stability makes them attractive to investors seeking consistent returns over the long term.
- Non-Cyclical Nature: Unlike many businesses that are susceptible to economic downturns, infrastructure assets tend to be non-cyclical. They provide essential services and utilities that are needed regardless of the economic conditions. This resilience makes infrastructure investments more reliable during economic recessions.
- Low Variable Costs: Infrastructure assets typically have minimal variable costs per use. Once the initial construction is complete, the ongoing costs per usage are relatively low. This characteristic enhances the profitability and efficiency of infrastructure investments.
- High Leverage Potential: The stability and predictability of cash flows in infrastructure projects allow for higher leverage. Higher levels of debt can be safely assumed due to the steady income streams, which can amplify returns on investment. However, it’s important to balance leverage with risk management to avoid potential financial difficulties.
The Investment in infrastructure is essential for more rapid and inclusive economic growth:
Investment in infrastructure is indeed crucial for promoting rapid and inclusive economic growth in India. Here is key factor:
- GDP Contribution: Infrastructure development contributes significantly to India’s GDP. According to data from the Central Statistics Office (CSO), the infrastructure sector accounted for about 9.3% of India’s GDP in the fiscal year 2020-2021.
- Job employment: Infrastructure investments create employment opportunities, which are essential for inclusive growth. According to the Ministry of Statistics and Programme Implementation, the infrastructure sector in India employed around 51.2 million people in 2019-2020.
- Logistics Cost Reduction: Improved infrastructure reduces logistics costs, benefiting various industries and promoting inclusive growth. The Logistics Performance Index (LPI) is a widely used indicator to assess logistics efficiency. India’s LPI score has improved from 3.08 in 2014 to 3.42 in 2018, indicating enhanced logistics performance.
- Power Sector Growth: Adequate power infrastructure is vital for economic growth. India has witnessed significant growth in power generation capacity. As of 2020, the installed power generation capacity in India was around 384 GW, as reported by the Ministry of Power. This expansion has supported industrial development, business operations, and household consumption.
- Road Network Expansion: The development of road infrastructure improves connectivity and market access, fostering economic growth. India’s road network has seen substantial expansion in recent years. As per the World Bank, the total road network in India increased from about 3.4 million kilometres in 2011 to approximately 5.9 million kilometres in 2020.
- Digital Connectivity: Investment in digital infrastructure has a transformative impact on economic growth and inclusiveness. As of 2021, India had over 624 million internet subscribers and over 720 million broadband subscribers, indicating improved digital connectivity, as reported by the Telecom Regulatory Authority of India. This has enabled access to digital services, e-commerce, and technology-driven innovation.
- Rural Connectivity: Initiatives like the Pradhan Mantri Gram Sadak Yojana (PMGSY) have played a crucial role in enhancing rural connectivity. Under the PMGSY, over 6.4 lakh kilometres of rural roads have been constructed, improving accessibility and promoting inclusive growth in rural areas.
Conclusion
- Hence, India has demonstrated considerable focus on infrastructure initiatives. The establishment of the Development Finance Institution (DFI) with an initial capital of Rs. 20,000 crores is anticipated to act as a catalyst for facilitating infrastructure investments.. The achievement of the infrastructure expansion plan relies on the active participation of other stakeholders involved in the pipeline. This encompasses state governments, their public sector enterprises, and the private sector. Moreover, the effective implementation of comprehensive reforms in the banking sector is imperative.
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