Estimating Infrastructural Investment Needs for India

This article attempts to systemically project the demand and fund requirements for 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. The analysis is carried out in two stages. In the first stage, long-run linkages between infrastructure variables and income are established by applying the cointegration method. Subsequently, infrastructure demand functions are estimated by using a dynamic ordinary least squares (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 sector-wise demand and funding requirements. The results of the analysis indicates that in important sectors like electricity and ports, the government (the Planning Commission) has seriously underestimated future demand, while in the air transport sector, demand seems to be overestimated. Only in telecommunications, are the projections of this study at par with the government’s projections. Overall, we find that the government has underestimated infrastructure needs by at least 7 per cent. Based on these results, we propose the initiation of a set of reforms in the existing financing pattern of infrastructure in the country.