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Despite the thriving levels of growth of India’s economy in the last decade, the national levels of poverty and inequality are among the highest in the international ambit, and the country remains below the world average across a number of socioeconomic indicators (see for example, the World Development Indicators 2007 of the World Bank). From these indicators, I point out poor infrastructure and inefficient government regulation as the main binding constraints for economic growth that need to be addressed in the short run by the Indian government.

Graph 1. Infrastructure status in India (with data from the EIU 2006)

Inadequate or lack of infrastructure

According to the Economist Intelligence Unit (2006), India has one of the lowest infrastructure ratings in the world (see graph 1), which translates into one of the highest levels of risk on infrastructure (graph 2). Although largest Indian cities have been equipped in the past few years with infrastructure, many of the rural areas have remained unaffected, fostering inequality (for an explanation of this relationship, I recommend the work of Sen and Himanshu on poverty and inequality in India). The main facades of poor infrastructure are energy and water supply, educational and health facilities, and transportation.

Graph 2. Infrastructure risk and rating in India (with data from the EIU 2006)

Energy and water supply

The energy production in India is about 85 percent of the total demand. The shortage has led to rationalization programs that account up to half a day of power cuts in rural communities -when available. Two-thirds of private companies have invested and run their own power generators, suggesting an impact on business competitiveness. On the other hand, the traditional mechanism used especially in low and medium-income communities to cope with water scarcity is the pumping of groundwater. The depletion of aquifers makes this strategy no longer sustainable. Furthermore, according to USAID (2007), there is a strong link between the subsidized pumping of water for agriculture and electricity shortages due to the amount of energy consumed by the pumping systems.

Educational and health facilities

According to the World Competitiveness Book 2006, India has the highest ratio of pupils to teaching staff and the second largest ratio of inhabitants to physicians and nurses, out of 61 countries analyzed. Beyond the direct effect of lack of educational and health facilities on the levels of illiteracy and mortality , and in other variables such as unemployment and business productivity, missing infrastructure in these areas has represented a challenge for the implementation of different development strategies, mainly in the area of social security . It also influences the migration to larger urban areas, adding pressure to cities’ infrastructure.

Transportation

Although the Indian railway is the largest in Asia, due to the tariff policies that overcharge freight to subsidize passenger travel, the transportation of goods is increasingly shifting from railways to roads. In addition, the Indian road network in kilometers increased more than 60 percent between 1995 and 2006, and the ratio of paved to dirt roads dropped around 30 percent during the same period (see graph 3). The low quality of the transportation structure hinders the generation of regional markets and the development of isolated areas deprived from private investment, which focuses on areas with better levels of mobility

Graph 3. Roads in India (with data from the World Bank 2007)

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