Viewpoint: Infrastructure, Governance and Growth

18 JUL,2022 | MEDC

Infrastructure investment, in and of itself, does not guarantee employment generation or economic growth in real time. It is a means to an end, in that it creates the required socioeconomic conditions wherein private investment can generate the growth of employment. Thus, public-sector investment is most impactful when it is followed by private-sector investment, as that, usually, is more in tune with the pulse of the masses. This is especially important to scale up public investment in infrastructure in India, which will go a long way in enhancing the nation’s growth prospects.

The benefits of infrastructure development can be best reaped by good governance. In this regard, more information (both in terms of quality and quantity) needs to be made available to the public. Access to information facilitates accountability – a key precondition for better administration. When government produces, gathers and disseminates reliable information, decisions are more transparent, citizens are better informed, and institutions and civil society organizations can hold the authorities to account. This is an often overlooked fact, going a long way in promoting sustainable socioeconomic growth.

Digitalization can also have a vital impact on economic growth. Institutional quality and e-governance are often positively correlated, and digitalization can enhance administrative transparency. Digital reforms to enhance institutional quality can make a difference, but they need to be properly sequenced, say, by prioritizing education and healthcare, so that their immense public benefits begin to trickle immediately to the bottom of the pyramid. Covid has highlighted the need for a strategic digitalization of the system, to ensure that the economy does not stall in times of uncertainty.

Global trends such as migration, ageing societies, funding gaps and disruptive technologies are transforming the infrastructure industry. India is not immune to them. Policymakers must develop innovative and collaborative mechanisms that deliver major infrastructure and socioeconomic development projects in a timely manner and within budgetary constraints– mechanisms that improve the understanding between the public and private sectors and contain clear evaluation metrics as well as the flexibility to deal with today’s inevitable economic, environmental, political and technological vicissitudes. Then only can genuine progress occur towards socioeconomic growth at all levels. This is not easy, but it is doable given the will in the corridors of power.

Throughout modern economic history, some of the best policy minds have gravitated to designing the architecture of the institutional frameworks through which the myriad benefits of infrastructure development percolate to the masses. Hundreds of such examples can be found in India itself. A vast infrastructure development industry is now chugging along in the country, building new assets in every part of the land. But it is now time to step back and reexamine some core propositions. The cost of moving production to a remote part of India and taking out a factory there is no longer the main issue confronting our entrepreneurs. The key problems now lie in the complexities of the tax system, capital controls, legal risk, policy flip-flops, and deep-rooted uncertainty associated with the regulatory mechanisms. As long as these (fundamentally governance) issues are not adequately addressed, physical infrastructure development will not automatically lead to economic growth.


*Picture Credit: Google


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