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Effects of public investment in infrastructure on growth and poverty in India

Author

Listed:
  • K. N. Murty

    (Indira Gandhi Institute of Development Research)

  • A. Soumya

    (University of Hyderabad)

Abstract

Counter factual policy simulations of sustained increase in public investment in infrastructure, financed through borrowing from commercial banks, shows substantial increase in private investment and thereby output in this sector. Further, due to increase in absorption, real private investment and thereby output in all the other three sectors also seems to increase, which sets-in motion several other macro economic changes. A 20 sustained increase in public investment in infrastructure, which is 0.5 of GDP and 2.7 of total govt. revenue in 2000-03, can accelerate the real macro economic growth by 1.8 in the medium to long-run (6-10 years after the policy change). This will be accompanied by a 1.4 fall in wholesale price index and 0.2 decline in the rate of inflation. Sectoral prices, except that of agriculture, also decline to varying extent, the steepest decline being for infrastructure price. Further, this increase in income will lead to 0.7 reduction in poverty in rural India. This shows the potential for achieving the much-debated 10 aggregate real GDP growth in the Indian economy.

Suggested Citation

  • K. N. Murty & A. Soumya, 2006. "Effects of public investment in infrastructure on growth and poverty in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-006, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2006-006
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    1. K.N. Murty & A. Soumya, 2011. "Macroeconomic effects of public investment in infrastructure in India," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 4(2), pages 187-211.
    2. K. Krishnamurty & V. Pandit, 1996. "Exchange Rate, Tariff and Trade Flows: Alternative Policy Scenarios for India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 31(1), pages 57-89, January.
    3. K.N.Murty & A. Soumya, 2006. "Macroeconomic effects of public investment in infrastructure in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-003, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Planning Commission, 2006. "An Approach to the 11th Five Year Plan: Towards Faster and More Inclusive Growth," Working Papers id:569, eSocialSciences.
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    Cited by:

    1. Sajad Ahmad Bhat & Bandi Kamaiah, 2021. "Fiscal policy and macroeconomic effects: structural macroeconometric model and simulation analysis," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(1), pages 81-105, June.
    2. Nishija Unnikrishnan & Thomas Paul Kattookaran, 2020. "Impact of Public and Private Infrastructure Investment on Economic Growth: Evidence from India," Journal of Infrastructure Development, India Development Foundation, vol. 12(2), pages 119-138, December.
    3. Eka Sastra & Didin S. Damanhuri & Noer Azam Achsani & Ahmad Erani Yustika, 2021. "Impact of agricultural sector investment development on national economic output," Technium Social Sciences Journal, Technium Science, vol. 26(1), pages 466-474, Decembrie.
    4. Masood Ahmed Qazi & Syed Ammad, 2021. "Public investment efficiency and sectoral economic growth in Pakistan," Development Policy Review, Overseas Development Institute, vol. 39(3), pages 450-470, May.
    5. Santosh Mehrotra, 2020. "‘Make in India’: The Components of a Manufacturing Strategy for India," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(1), pages 161-176, March.
    6. Syed Ammad Ali & Qazi Masood Ahmed & Lubna Naz, 2016. "Public spending on human capital formation and economic growth in Pakistan," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 23(1), pages 1-20, June.
    7. Haskanbancha, Nazmi & Masih, Mansur, 2018. "Does public infrastructure lead or lag GDP? evidence from Thailand based on NARDL," MPRA Paper 112459, University Library of Munich, Germany.

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    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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