The World Bank’s chief economist Justin Yifu Lin said recently, “The only mantra now is to remove infrastructure bottlenecks so that the economy is ready for a high growth path when global revival takes place.”
Lin said this in the context of the World Bank planning to clear a $2.6 billion loan for infrastructure investment in India. During recession, government spending increases, needlessly focusing on handouts and trying to prop up demand in the short run. Sensible spending and focusing on the long term—such as infrastructure investment—will give the Indian economy a leg-up as the crisis subsides.
Even with the hefty $2.6 billion price tag, the World Bank’s infrastructure investment is a good move, especially during this recession.
Illustration: Jayachandran / Mint
First, the projects will stimulate short-term job creation as roads or pipeline ventures are staffed. Secondly, infrastructure investment will stimulate demand in a swathe of Indian industries from cement to steel. In the longer run, the benefits will be great. Ailing infrastructure is a major bane of India’s long-term growth.
Between poor roads bottlenecked with ever more cars and burdened electricity systems in India’s urban centres, the strain on infrastructure will only increase if left alone. There are serious ramifications for India’s future growth prospects. The Economist Intelligence Unit and KPMG released a survey last week saying that 95% of top Indian executives felt poor infrastructure was hindering long-term growth of their businesses.
In particular, manufacturing has been hit hard by inefficient infrastructure, impeding global competitiveness. Better infrastructure will certainly decrease manufacturing costs in India and increase the sector’s growth. It’s about time India eroded China’s manufacturing dominance.
Finally, project costs during this recession will almost certainly be lower than in better times. These investments, therefore, could very well pan out to be a bargain right now.
Infrastructure is a notoriously difficult sector to fund: It often falls under the purview of governments, which have little short-term political incentive to make hefty investments in roads or electricity. And poor infrastructure hurts the private sector, which often does not have the means—or individual incentive—to tackle projects alone. In short, an outside actor such as the World Bank has a privileged position in brokering infrastructure investment.
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