Why do Indian States differ in their Infrastructure Development?
Govinda R TimilsinaSenior Economist, World Bank
Pravakar SahooProfessor, IEG
Ranjan Kumar DashSymbiosis School of Economics Pune
Abstract:- The literature suggests that one of the main factors behind the interstate inequality in economic development in India is the variation in the level of infrastructure development. However, the reasons for unequal infrastructure development across the Indian States are less understood. This study empirically analyzes the role of various factors (economic, fiscal, demographic, social, institutional, and political) to explain interstate infrastructure inequality using a panel dataset for 18 States in India over the period of 2005 to 2019. Employing the principal component analysis technique, three separate infrastructure indices are developed for physical, social, and financial infrastructures. The relationship of each index with its explanatory variables is estimated using a System Generalized Method of Moments. The results show that economic factors-including economic performance, financial development, investment, and economic structure-are relatively more influential on physical infrastructure. For social infrastructure, in addition to economic factors, fiscal and demographic factors are more influential. Meanwhile, economic and demographic factors are found to be drivers of financial infrastructure. Financial development fosters physical infrastructure while its impact on social infrastructure is weak.