The impact of infrastructure provisioning on inequality : evidence from India

India witnessed high levels of growth in the last decade but national levels of poverty and inequality remain high. Infrastructure provision is seen as a particularly important instrument for helping in regional development where government can play a significant role due to the public goods nature of infrastructure facilities. Literature confirms the positive association between infrastructure and growth. However, it is not necessary that economic growth attributable to infrastructure development will consequently lead to a reduction in inequality. This paper analyses the links between physical infrastructure and inequality and determines the nature of this relation and focuses on 17 major Indian states. Gini coefficient (for rural and urban sectors combined) was used as the dependent variable and it was computed data on Monthly Per Capita Consumption Expenditure (MPCE), which was estimated from Unit level records of the periodical Household Consumer Expenditure surveys of National Sample Survey Organisation for the years 1983, 1987-88, 1993-94, 2004-05, and 2009-10 (Rounds 38th, 43rd, 50th, 61st and 66th round respectively). By evaluating Indian states with different levels of development (measured in terms of per capita net state domestic product (NSDP)) the paper shows that the impact of infrastructure on consumption inequality across states differs not just for the type of infrastructure under consideration but also for the income category the state belongs to. The results have shown that some components of infrastructure, mainly power and roads, tend to increase interpersonal inequality at the regional level and the paper provides some explanations for this result. The initially rich states were also the ones with a better endowment for infrastructure facilities and these states continued to remain in the rich income category with an average PCNSDP much above India’s, and they managed to grow in terms of their infrastructure endowments. They, however, also showed higher levels of inequality. The results of this study do not prescribe abandoning transportation projects or infrastructure development but instead recommend that the government should emphasize also on investments in complementary policies. Infrastructure can help open up opportunities but it should not be that these benefits are reaped by those who are in a position to be able to take advantage of these.