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The IUP Journal of Applied Economics
Infrastructure, Growth and Poverty Nexus in India: A State-Level Analysis
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The present study attempts to assess the growth momentum of the infrastructure and economic growth across the major states in India during 1972 to 2012 and 1971 to 2011. It explores the causal linkages that exist between the different types of infrastructural services—Economic Overhead Capital (EOC), Social Overhead Capital (SOC) and the Composite Index of Infrastructure Development (CIID)—Per Capita Net State Domestic Product (PCNSDP) and poverty reduction. The index of both EOC and SOC are proxies for physical and human capital respectively. The EOC index refers to the growth of irrigation, transportation, energy, post and communication, banking and financial, while the SOC index represents health and educational services. The estimated CIID values comprise both EOC and SOC in a single index. Hence, infrastructure is the necessary condition to attain efficient economic growth with low levels of incidence of poverty ratio by widening external economies at the sectoral and regional levels. In contrast, increased variance in access to basic infrastructural services at the state level resulted in reducing the convergence tendency of income. Simultaneously it enhanced the divergence in PCNSDP and deteriorated the welfare of the people. As a result, Higher Infrastructure Development States (HIDs) are growing faster in income and non-income segments. On the contrary, the level of productivity and convergence tendency of income and non-income development indicators is unfavorable to the Lower Infrastructure Development States (LIDs). Eventually, LIDs, particularly, Bihar, Uttar Pradesh, Assam, Odisha, Madhya Pradesh and Rajasthan, are under the acute condition of deficiency of basic infrastructural facilities, and it led to curtailed growth performance of the states with higher levels of poverty ratio.

 
 
 

The provision of basic infrastructural services plays a significant role in rapid socioeconomic development. Abundance and efficiency in both physical and human capital generate structural changes at the bottom level, thereby maximizing the potential capacity of the factors of production and augmenting farm and non-farm productivity. So, all these factors directly and indirectly help to generate a substantial impact on production at the sectoral and regional levels too. According to GoI (1995-96, p. 134), adequate quantity, quality, and reliability of infrastructure are the key determinants of growth of overall economy and exports. It is often said that infrastructure can be considered, if not the engine, as the wheels of economic growth (World Bank, 1994, p. 14). In particular, physical infrastructure and public capital stock are positively and significantly related to growth in Gross Domestic Product (GDP) per capita and affect per capita personal income. Thus, infrastructure capacity grows along with economic output; a 1% increase in the stock of infrastructure is associated with a 1% increase in GDP across all countries. It is evident that a strong association exists between the availability of certain infrastructure and per capita GDP (Shah, 1970; Kevin and Randall, 1991; World Bank, 1994; and Sanchez-Robles, 1998). In addition, infrastructure plays a crucial role in alleviation of poverty, raising the living standard, providing environmental sustainability, and creating effective demand in the economy (World Bank, 1994; Wei et al., 2008; and Seetanah et al., 2009). Calderon and Serven (2004a and 2004b) suggest that infrastructure development should rank at the top of the poverty reduction agenda.

 
 
 

Applied Economics Jouranl, Infrastructural Services,Economic Overhead Capital (EOC), Social Overhead Capital (SOC), Composite Index of Infrastructure Development (CIID)—Per Capita Net State Domestic Product (PCNSDP), Poverty reduction.