Estimating Infrastructural Investment Needs for India

Abstract

This paper attempts to systemically project the demand and fund requirements of the Indian infrastructure sector up to 2013. In the infrastructure sector transportation (rail, port, air and road), electricity and telecommunication sectors are covered in this study. Our analysis is performed in three stages. In the first stage, long run linkage between infrastructure variables and income are established by applying cointegration method. Subsequently, infrastructure demand functions are estimated by using Dynamic OLS (DOLS) technique. In the second stage, by using the estimated infrastructure elasticity to income of variables and IMF’s projected income data, we project the sector-wise demand and funding requirement. In the final stage, we put forward some suggestions for reforms in infrastructure financing, so the projected demand in the country would be achieved. The results of the analysis indicates that in important sectors like electricity and port, the government(the Planning Commission) has seriously underestimated the future demand, while in air transport sector, the demand seems to be overestimated. Only in telecommunication sector, the projections of this study are at par with their projections. Overall, we find that the government has at least 7% underestimated the infrastructure needs. Based on these results, we propose for initiation of a set of reforms in existing financing pattern of infrastructure in the countryInfrastructure projection, DOLS, India