Transcript Document

Macroeconomic Considerations in
Infrastructure Development
By
Shashanka Bhide
NCAER
November 21, 2008
Outline
• Infrastructure development and India’s
economic growth
• Financing Infrastructure: The 11 th FYP
challenges
• Lessons for PPPs?
Seeking economic growth and
development
• Focus on raising rate of investment
through the Five Year Plans
• Demand led infrastructure development
or supply driven development?
• Infrastructure development primarily
through public sector investments
0
2008-09
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71
1968-69
1966-67
1964-65
1962-63
1960-61
1958-59
1956-57
1954-55
1952-53
1950-51
Frustration ends in the 1980s
GDP growth (3 Yr MA) %
10
9
8
7
6
5
4
3
2
1
Raising investment and saving (%GDP):
Change in the public sector’s role
40.0
40.0
35.0
35.0
30.0
30.0
25.0
25.0
20.0
20.0
15.0
15.0
10.0
10.0
5.0
5.0
0.0
1992-97
1997-02
2002-07
Pvt saving
Pub saving
-5.0
0.0
1992-97
Pvt Investment
1997-02
2002-07
Pub. Investmet
2007-12
Pub. As% of total
2007-12
Infrastructure
•
•
•
•
•
•
•
•
•
Electricity
Roads, bridges and railways
Ports
Airports
Telecom
Irrigation
Water supply and sanitation
Storage
Gas distribution
Nirvana of Infrastructure
Type
Desire
Electricity
24X7, stable voltage and
frequency
Roads
All weather
Railways
Not over-crowded, do not
overcharge for freight
Ports
Low turn-around time
Airports
Handle growing traffic
Telecom & broadband
Internet all over the country
Investment in Infrastructure (%GDP):
XI th FYP
10
9
8
2.89
7
2.51
2.16
6
1.91
5
1.73
Private
1.20
Public
4
6.45
3
2
5.68
4.23
4.25
2006-07
2007-08
4.62
5.09
1
0
2008-09
2009-10
2010-11
Public sector constitutes 70% of total infrastructure investments
Source: 11th FYP Vol. I
2011-12
The Concerns
• Can public sector provide the resources
that are necessary to meet the targets?:
fiscal constraints
• Will private sector come forward to
provide the resources to meet its share of
the effort?: institutional framework
Resources for accelerating growth
(Rs trillion, 2006-07 prices)
Financing the Plan
X th FYP XI th FYP
% change
2002-07 2007-12
Balance from Current Resources
-1.6
10.4
-753.9
Borrowings
12.2
14.2
16.0
Net inflows from abroad
0.2
0
-100.0
Resources of PSEs
5.8
11.9
105.8
16.5
36.4
120.5
Total Resources
Source: 11th FYP Vol. I
Assessing role of infrastructure
• How crucial is it to meet the goals of
infrastructure investment?
– What has led to the acceleration in
growth?
Series1
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71
1968-69
1966-67
1964-65
1962-63
1960-61
1958-59
1956-57
1954-55
1952-53
1950-51
Growth has meant rising output per unit
of labour
Labour Productivity Index (GDP/ Lab)
400
350
300
250
200
150
100
50
0
Capital Intensity flat during growth
acceleration
Capital Intensity Index (K/GDP)
300
250
200
150
100
50
0
200
10
180
9
160
8
140
7
120
6
100
5
80
4
60
3
40
2
20
1
0
0
1953-54
1954-55
1955-56
1956-57
1957-58
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Infrastructure Intensity has also
plateaued in the last 15 Years
Infrastructure Intensity Index (Infa_K/GDP) and Growth of
Infratrsucture Stock (%)
gr Infra_K
INFRA_K/GDP
Investment alone has not led to growth
acceleration
• Flat capital intensity and infrastructure
intensity, yet productivity growth has
increased
0
GDP_IND
GDP_SER
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991-92
1989-90
1987-88
1985-86
1983-84
1981-82
1979-80
1977-78
1975-76
1973-74
1971-72
1969-70
1967-68
1965-66
1963-64
1961-62
1959-60
1957-58
1955-56
1953-54
Services dominate industry in growth
performance
Sectoral Differences in Growth:
Services and Industry
12
10
8
6
4
2
0
GDP_AG
-2
GDP_SER
2005-06
2003-04
2001-02
1999-00
1997-98
1995-96
1993-94
1991-92
1989-90
1987-88
1985-86
1983-84
1981-82
1979-80
1977-78
1975-76
1973-74
1971-72
1969-70
1967-68
1965-66
1963-64
1961-62
1959-60
1957-58
1955-56
1953-54
Services dominate agricultural growth
even more sharply
Sectoral Differences in Growth:
Services and Agriculture
12
10
8
6
4
2
RGDPIND
RGDPAG
RGDPSER
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71
1968-69
1966-67
1964-65
1962-63
1960-61
1958-59
1956-57
1954-55
1952-53
1950-51
The sectoral differences in growth have
altered the economic structure
Changing Structure of the Economy: Shares in GDP(%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Sources of growth: Bosworth, Collins
and Virmani (IPF, 2007)
Economy/
Period
Output
(Q)
(Q/W)
Contribution of
K
Education Factor
productivity
India
1960-80
3.4
1.3
0.8
0.2
0.2
1980-04
5.8
3.7
1.4
0.4
2.0
1960-80
4.0
1.8
0.8
0.4
0.6
1980-04
9.5
7.8
2.8
0.4
4.5
China
Labour Productivity Index
K/GDP
INFRA_K/GDP
2006-07
2004-05
2002-03
2000-01
1998-99
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71
1968-69
1966-67
1964-65
1962-63
1960-61
1958-59
1956-57
1954-55
1952-53
1950-51
Did capital and infrastructure
inadequacy lead to structural change?
Resource Allocation Drives Productivity Growth
400
350
300
250
200
150
100
50
0
Motivation for analysis
• When the economy is increasingly market
driven, can public sector infrastructure
supply be adequate in composition and
quantity?
• Will private sector participation in
infrastructure development lead to adequate
quantum and composition of infrastructure?
• Are there any lessons from India’s
experience?
Distant returns make public sector
driver of investment
Infrastructure
Using Sectors
Pvt Invest
Sell
Infra using
sectors
Infra sectors
Pub. Invest
Output
Provide
Output
Taxes
Infrastructure
Sectors
Infrastructure:
Gravitation of collaborations
Moving Infrastructure
Sectors
Fixed Infrastructure
Public
Private
Public
•Railways
•Local
body
services
Private
Storage?
•Telecom
•Civil Aviation
•Ports
•Roads
Telecom
Civil Aviation
Ports
Roads
Countries with private capital (%) in
2002: Income elasticity of PPPs
Income
groups
Electricity
Generation
(155
countries)
Electricity
Distribution
(155)
Telecoms (164
countries)
Low income
33
26
37
Lower Middle
39
31
51
Upper Middle
58
39
66
Developed
70
43
83
Source: Estache (2004)
How stable will be infrastructure
development?
•
Tests for causality between infrastructure and
growth: lessons for PPPs?
The Granger Causality Tests:
GDP growth and per capita stock of capital
Infrastructure K
Does not
Cause
GDP growth
Causes
Infrastructure K
Transport K
Does not
cause
GDP growth
Causes
Transport K
Communications K
Causes
GDP growth
Causes
Communications K
Causes
GDP growth
(Industry +
Services)
Causes
Electricity K
Electricity K
Conclusions
• Effect of growth on infrastructure
development appears more prominent than
the other way round
• This implies that favourable fiscal position is
important for infrastructure development
• There are sectors where growth impact of
infrastructure development is more
immediate and therefore may be more
attractive for PPPs
Thank You