Driving on the wrong side: How misplaced infrastructure priorities limit India’s economic potential

In India, though, while the decline in the share of agriculture in GDP has been very rapid, the movement of population from rural to urban areas has not kept pace.

A Reason For It

The approach to infrastructure has played an important role in creating this anomaly.

The permanent migration of population from the countryside to cities requires an urban infrastructure that is hospitable to workers at the lower end of the economic hierarchy. There is a need for housing and transportation that the poor can afford.  The focus in India has, however, been on expensive expressways within cities and airports that match the best in the world, thereby raising the cost of infrastructure many times over. When these costs are passed on through tolls and other instruments, including on public transport, it raises the cost of living in the city.

At the same time, the expensive world-class infrastructure creates an environment that attracts high-end gated communities. As these communities demand a work, home, and leisure environment that matches that of the world’s richest cities, they increase the premium on land.

Real Estate as a Barrier

With real estate prices shooting through the roof, the possibility of the poor in the villages migrating permanently into cities is virtually ruled out. Rural workers seeking a place at the bottom of the urban economic pyramid have little option but to retain their homes in their villages while carrying out short-term assignments in cities.

They develop a strategy of earning in cities to improve their status back in their villages. To this end, they are willing to rough it out in cities so that their earnings can be used to transform their role in their villages. Studies have shown that their living conditions during short-term assignments in cities are much worse than what they have in their village homes. As they move in groups from city to city they have little commitment to their urban settings, leaving no room for the development of a civic sense.

Workers living in difficult, sometimes inhuman, urban conditions alongside high-rise gated communities, create urban patterns that are far from comfortable. The desire to block out the poorer sections of the city leaves its mark on urban infrastructure. The speed of transportation demanded by the better-off sections of the city calls for infrastructure that bypasses the poor. This contributes to the building of roads designed for high speed traffic rather than bicycles or pedestrians.

High Cost of Ignoring Railways

The distinctly inhospitable nature of larger Indian cities to the poor, strengthens the resolve of lower-end workers to retain their rural homes, increasing their need to continuously move between their villages and the cities. As the workers frequently travel at short notice between their villages and different cities, there is a growing demand for lower-cost long-distance transportation. The railways are best suited to meet this demand. The railway network can move large numbers of workers from one end of the country to the other at relatively lower costs. Long railway lines do not, however, look as glamorous as expressways and clover-leaf flyovers. The preoccupation with glamorous infrastructure has ensured there has been an emphasis on expensive roads, while Indian Railways has been downgraded from having its own budget to being just another transport related ministry.

To make matters worse, the railways have also begun to focus primarily on the more glamorous side of what they have to offer. The number of expensive air-conditioned coaches has been increased, with a corresponding decline in the number of coaches available for the poor to travel in.

Misplaced Priorities Hurt Manufacturing 

Disconnect between the nature of Indian infrastructure and the needs of the lower end of India’s labour force has a quiet but significant effect on the patterns of India’s growth. The cost of travel between the workers’ villages and distant urban workplaces raises the cost of labour.

Regional inequality does ensure that the wages of labour from rural parts of the poorest regions in the country are well below the wage rates that workers in the larger cities of the country are willing to accept. But the costs of transportation ensure that the lowest wages are higher than that acceptable to workers in other countries where they do not bear these additional costs. India has thus tended to lose out in global competition for products based on low-cost labour.

This loss is not reflected in the overall growth rates as workers at higher levels of technical skills remain an attractive proposition for investors, including foreign investors. But the pattern of high growth with substantial unemployment at the bottom of the pyramid can generate social stress. The recent elections have demonstrated that this stress can even gain a political voice. If political pressure does lead to a demand for a change in economic direction, the approach to infrastructure would be a good place to start.