Examining the Relationship between Diffrent Modes of Infrastructure Financing and Economic Growth in India

Abstract

With an aim to achieve a status of 5 trillion economy, India has to fulfil the criteria of achieving minimum 9%+ growth rate consistently for next five years. But at present, the economic indicators of India reflect a dismal picture to achieve that goal. The economic growth rate of India has gone down to almost five percent in first quarter of financial year 2019-20. Since the opening up of the Indian economy in 1991, the role of private sector in reviving the country’s growth cannot be overstated. Expanding investment in infrastructure is often projected as a weapon which can play a counter cyclical role in the phase of such economic crisis. In an attempt to analyse the impact different modes of investment in infrastructure on economic growth of India, this paper examines the trend of investments by private as well as both public and private (joint) since 1990s. Further, a time series econometric analysis is carried out for a period of twenty-eight years (1990-2018) wherein the nexus between investments (primarily in transportation and energy sector) and economic growth of India (GDP per capita) is examined. To examine the dynamic relationship between the variables, their causality, exogeneity and comparability, the Vector auto regression (VAR) model, along with the Forecast Error Variance Decomposition (FEVD) and Vector Error Correction Model (VECM) is used. The results of VAR and VECM suggests that there is significant impact of investment in infrastructure upon economic growth of India.