Infrastructure is the set of physical and organizational structures (e.g. roads, water supplies, hospitals) needed for the operation of an enterprise or the society as a whole.
It comes from the French word ‘Infra’, which means below. This shows the literal significance of infrastructure which forms the basis of all enterprises in modern society.
Infrastructure Deficit is the condition of a society which does not have enough infrastructure to facilitate its population’s aspirations. Certain areas and sectors in India witness a deficit of critical infrastructure.
Classification of Infrastructures:
Classification of Infrastructure Based on Ownership:
- Public infrastructure: is owned by the government. These are non-exclusive goods (i.e. which are open to all for utilization) which help the enterprises and society to function. For example, National Highways.
- Private infrastructure: is owned by private entities. These are exclusive goods which are privately utilized by an enterprise for its own economic growth. They may or may not benefit society directly. For example, Google’s data storage centres.
Based on Tangibility
- Hard Infrastructure: Physical systems needed to run an economy, such as transportation systems, energy, communication lines etc.
- Soft Infrastructure: These represent the institutions and processes which are necessary to run the economy. For example, financial institutions, civic agencies etc.
Based on Use
- Physical infrastructure: includes all the facilities and structures that directly improve the economic activity (i.e. production and distribution). For example, electricity distribution network.
- Social infrastructure: includes all the services that lead to human resource development, such as schools, colleges and hospitals etc.
Common Characteristics of Infrastructure:
Despite the diverse categories, all infrastructures have certain common characteristics. These are:
- Public good: Most of them have some element of public good in them.
- Hidden Benefits: Even if infrastructure might not be financially viable, it may have a social advantage. For example, if all schools are run to generate profit, society might have an under-skilled population.
- Monopolies: Some users have greater access to them than others. For example, people in better localities have greater access to roads and urban transport systems.
- Indivisibility: Often, it is difficult to distribute a project to distribute the benefits to the wider public.
- Investment-Intensive: They require a large amount of investment in huge chunks.
- Public sector dominance: Often, only the government can arrange enough financial resources to build large infrastructure.
Importance of Infrastructure:
- Improves productivity of labour: especially the social infrastructure, leads to better health and skill levels for the workforce. Even access to physical infrastructure such as public transport eases mobility and saves effort.
- Eases Mobility: From enhancing access to the markets to reducing the wastage of perishable items like vegetables, easy mobility helps all sectors of the economy.
- Market development: Deeper inroads into far-flung areas expand the markets as well as the financial capacity of the population therein.
- Attracts Investment: Infrastructure is an investment-intensive sector. The annuity models developed over the years for the various types of projects create a regular channel of income. This helps attract investment from financial institutions and the general public.
- Attracts foreign exchange: Foreign financial institutions (FIIs) often find developing markets like India more profitable in terms of return on investment.
- Employment Generation: Investment in infrastructure creates construction-related jobs and maintenance-related jobs as well as facilitates businesses in their operations, creating opportunities for local entrepreneurs.
- Penetration of Technology: Each infrastructural project facilitates the skilling of thousands of workers, who can help in the penetration of the technology further in the future. For example, the success of the Delhi Metro Project made it easier for Metro rail technology to penetrate dozens of cities across India.
- Promotes Growth: Infrastructure has a multiplier effect on the economy. It creates jobs, business opportunities, returns on investment etc., thus affecting all sectors of the economy. For this reason, during the recession phase in the economy, the government stresses Infrastructure creation to boost growth.
In fact, better infrastructure is often synonymous with development. Developed countries are those which have better infrastructure and, therefore, a better quality of life.
Classification of Infrastructure in India:
In India, the Department of Economic Affairs, Ministry of Finance, looks after the infrastructure funding and therefore is the biggest stakeholder.
The Department of Economic affairs classifies infrastructure into five sub-sectors:
1. Transport and Logistics Infrastructure
- Roads and Bridges
- Inland Waterways
- Railway Infrastructure: Railway Track, tunnels, viaducts, bridges
- Urban Public Transport (except rolling stock in case of urban road transport)
- Logistics was added in 2017.
2. Energy Infrastructure
Energy Infrastructure includes:
- Electricity Generation
- Electricity Transmission
- Electricity Distribution
- Oil pipelines
- Oil/Gas/Liquefied Natural Gas (LNG) storage facility
- Gas pipelines
3. Water & Sanitation Infrastructure
- Solid Waste Management
- Water supply pipelines
- Water treatment plants
- Sewage collection, treatment and disposal system
- Irrigation (dams, channels, embankments, etc.)
- Storm Water Drainage System
- Slurry Pipelines
4. Communication Infrastructure
- Telecommunication (Fixed network)
- Telecommunication towers
- Telecommunication & Telecom Services
5. Social and commercial infrastructure
- Education Institutions (capital stock)
- Hospitals (capital stock)
- Three-star or higher category-classified hotels located outside cities with a population of more than 1 million.
- Hotels with a project cost of more than Rs.200 crores each in any place in India and of any star rating;
- Common infrastructure for Industries such as:
- industrial parks,
- Special Economic Zones,
- tourism facilities and
- Agriculture markets.
- Agriculture-related infrastructure such as:
- Fertilizer (Capital Investment)
- The post-harvest storage infrastructure for agriculture and horticultural produce, including cold storage.
- Terminal markets
- Soil-testing laboratories
- Cold chain?
- Convention Centres with project costs” of more than Rs. 300 crores each.
- Affordable Housing was added in 2017.
Challenges to Infrastructure Development in India
- Government Predominance: Government is the biggest investor in many key sectors in India, such as coal, hydropower, railways, roadways, hospitals, education etc. This discourages private investors due to unfair competition.
- Poor financing: Indian financial institutions and individuals cannot often gather enough financial resources. Therefore, despite the pressing infrastructural deficit, India is unable to develop fast enough.
- Land acquisition and rehabilitation: Land acquisition has never been easy in India due to political and social issues. There is a trust deficit between the government and society.
- Red–Tapism: It has been difficult to get environmental and local clearances. There still are issues of transparency and bottlenecks at different levels. For example, the ease of doing business report in 2020 showed that it takes 55 days to get an electricity connection in metro cities in India.
- Limited Capacity of Private players: There are only a handful of private players in India with the technical and financial capability to undertake huge infrastructural projects.
- Skill levels: There is a huge skill gap between Indian labour and the world labour market. Both government and private firms have found it challenging to bridge this gap through training programs.
- Digitalization: It brings transparency and efficiency to government processes. Further, Digital public infrastructure such as UPI, Digi-Locker, has created a new type of economy which is much more efficient. India needs to penetrate such systems deeper into the local level of governance.
- Fairness and Transparency: Over the years, with the introduction of e-Tenders, the issues of corruption have been largely addressed. However, we need the penetration of such practices to all levels of the government.
- Dispute resolution: At various levels, from land acquisition to environmental matters to taxation matters, disputes are bound to arise in investment-related matters. A robust system of tribunals and an efficient judiciary is necessary to create a better investment climate.
- Law and order situation: Investor confidence is higher in the areas where the protection of the private property is ensured.
- Innovative Financing Models: The government has brought innovative annuity models to reduce the risk of investors. Further, plans like PM Gati shakti and the national investment pipeline try to leverage public and private investment into infrastructure projects in India.
- Stable government Policy: This enables the private player to accurately calculate the long-term risks, thus allowing them to invest with confidence. For example, if there is too much government interference in toll collection after the construction of a road, investors would not like to put their money into the next project.
Conclusion: This article tried to understand the basics of the infrastructure. In the subsequent articles, we shall dive into the details of the infrastructure in each sector and the challenges faced there.
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