India’s la-la land infrastructure moment
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Chapter 5 of the Asian Development Bank’s report on infrastructure—Meeting Asia’s Infrastructure Needs—looks at the immediate investment required in infrastructure for 25 developing member countries (DMCs) between 2016 and 2020. In 2015, these countries invested $881 billion, which is well below the annual requirement of $1.2 trillion between 2016 and 2020. If investments to mitigate climate change are considered, that gap increases to $1.34 trillion (see Chart 1).
Coming to India, the estimated investment in 2015 was $118 billion, or 5.5% of gross domestic product (GDP). The annual gap in required investments is $112 billion or 4.1% of its GDP and if you consider climate change, then the gap increases to $144 billion or 5.3% of GDP. That’s the magnitude of the challenge which is faced by India and most DMCs in the list, except China. The report says bridging the gap will need sufficient finance to be made available and tackling of institutional issues related to infrastructure projects. That’s easier said than done.
Consider financing. Chart 2 shows the proportion of financing between public and private sources. All of China’s infrastructure projects are publicly financed, whereas the proportion is much less in India. If India’s infrastructure gap is to be closed, it requires both public and private investment to step up to the job. Neither side seems quite ready for the task.