Comprehensive theory, key formulas, diagrams, and memory aids for Infrastructure.
Infrastructure is the foundation on which an economy is built. It refers to the basic physical and organisational structures and facilities - power, transport, communication, banking, education, health and water supply - needed for the operation of a society and its economy. Infrastructure is sometimes called the 'wheels of the economy', because without it, production, trade, transport and everyday life cannot function.
The importance of infrastructure lies in its effects on production and on the quality of life. Better power, transport and communication raise productivity and reduce costs; better education and health raise human capital; and better rural infrastructure reduces poverty and improves the well-being of the people. Infrastructure investment is thus essential for both economic growth and social development.
This chapter studies the meaning and significance of infrastructure, the distinction between economic and social infrastructure, and the state of the major sectors of infrastructure in India - energy, transport, communication, banking and insurance - together with their problems and the reforms undertaken in these sectors.
Infrastructure is the network of facilities that supports economic activity. It may be of two broad types:
Both types are essential. Economic infrastructure enables production, while social infrastructure develops the people who do the producing. The two are complementary.
The significance of infrastructure can be understood from its many effects:
Energy is the most vital component of infrastructure. The two broad sources of energy are:
Power: Electricity is generated from thermal (coal, gas), hydro and nuclear sources. The power sector in India has grown considerably, with rising installed capacity, but it faces problems:
Reforms in the power sector: The Electricity Act 2003 sought to reform the sector by delicensing generation, promoting competition, and restructuring the State Electricity Boards (SEBs). The Saubhagya scheme and other programmes have aimed at universal electrification, including rural areas.
Transport moves goods and people and is essential for trade and production. India has a vast transport network:
The problems of transport include congestion, poor road quality, delays, high costs and inadequate capacity, particularly in rural areas.
Communication connects people and businesses and is vital for a modern economy. The communication sector in India has undergone a remarkable transformation since the 1990s:
Good communication reduces the cost of information and transactions, integrates markets, and enables the growth of the IT and business-process sectors.
Financial infrastructure - banking and insurance - is essential for mobilising savings and channelling them into investment.
Banking: The banking system, with the Reserve Bank of India at its head, mobilises savings and provides credit. The commercial banks were nationalised in 1969 and 1980, and the sector was later opened to private and foreign banks after the 1991 reforms. The Jan Dhan Yojana has brought banking services to the unbanked, and the financial inclusion agenda has expanded bank accounts, credit and payment facilities to the masses.
Insurance: Insurance provides protection against risks - life, health, property and crop. The Life Insurance Corporation (LIC), established in 1956, and the General Insurance Corporation and its subsidiaries dominate the sector. The sector was opened to private players and foreign participation after 1999, and the Insurance Regulatory and Development Authority (IRDAI) regulates it. Insurance penetration in India, though growing, remains low compared to developed countries.
The problems in financial infrastructure include inadequate penetration of banking in rural and remote areas, and low insurance coverage, though the recent reforms and programmes have made significant progress.
| Type of Infrastructure | Examples | Effect |
|---|---|---|
| Economic | Power, transport, communication, banking | Directly supports production |
| Social | Education, health, housing, water | Improves human capital |
| Sector | Major Development | Major Problem |
|---|---|---|
| Energy | Rising capacity, renewables | Shortage, losses, theft |
| Transport | PMGSY, highways | Congestion, poor rural roads |
| Communication | Telecom revolution | - (mostly success) |
| Banking | Nationalisation, Jan Dhan | Rural penetration |
| Insurance | Private entry, IRDAI | Low penetration |
graph TD
A["INFRASTRUCTURE"] --> B["Types"]
A --> C["Sectors"]
B --> B1["Economic - power, transport, communication, banking"]
B --> B2["Social - education, health, housing, water"]
C --> C1["Energy - conventional and non-conventional"]
C --> C2["Transport - railways, roads, ports, airways"]
C --> C3["Communication - telecom revolution"]
C --> C4["Banking - Jan Dhan, financial inclusion"]
C --> C5["Insurance - LIC, private entry, IRDAI"]
A --> D["Significance"]
D --> D1["Raises productivity and growth"]
D --> D2["Improves human capital and quality of life"]
D --> D3["Reduces poverty"]
This chapter studied infrastructure, the wheels of the Indian economy. We understood its meaning and its division into economic infrastructure - power, transport, communication, banking and insurance, which directly support production - and social infrastructure - education, health, housing and water, which develop human capital. We examined the state of each major sector: energy, with its conventional and non-conventional sources and the problems of the power sector; transport, with its railways, roads, ports, airways and pipelines; communication, which experienced a telecom revolution; and banking and insurance, which mobilise savings, provide credit and spread risk. In every sector we noted the expansion, the reforms, and the persisting problems such as shortages, congestion and inadequate rural coverage. Together with human capital and employment, infrastructure determines the pace and inclusiveness of Indian development. The impact of this development on the natural environment is the subject of the next chapter.