Access to infrastructure a necessity for inclusive growth

The loss of potential demand due to poor access to electricity in rural India is significant

Written by Vidya Mahambare | Published:May 20, 2013 12:21 am

The Budget 2013-14 has provided a renewed trust to rural India. The allocation to rural development is up nearly 50 percent with a focus on improving road infrastructure. With road construction activity picking up,rural income should see a lift in the coming year.

But is higher income alone the panacea,particularly for the uplift of households in rural areas? Not really. While raising income is a necessary condition,the improvement in welfare of households is also contingent on the kind of infrastructure that is put in place in the villages and the hinterland. In this regard,there cannot be a better example than the differential welfare impact created by improved road connectivity versus low electricity access in recent years to rural households to bring this point forth.

India’s high growth in the second half of the last decade has boosted income levels of rural households. For the first time since economic reforms began two decades ago,spending in rural India,backed by high wage growth,grew faster than in urban areas between 2009-10 and 2011-12 (Sustaining rural consumption boom,Crisil Research Insight – August 2012).

However,the impact of higher incomes on household welfare differs from region to region depending on the access to infrastructure services,specifically electricity and roads (Crisil Research Insight — Braving infrastructure hurdles,rural consumer goes shopping,November 2012).

Rural infrastructure is not only critical for enhancing productivity in agriculture and other sectors but is,at the household level,also essential for improving socio-economic well-being.

Consider some of the villages in rural Bihar or Uttar Pradesh. Disposable incomes of a typical households in villages have increased in recent years due to construction-related and other non-farm activities. They now have sufficient discretionary income to purchase an electric fan/television. Some of them can even begin to think about buying a two-wheeler from savings accumulated over a few months.

Construction activities in and around the village have gained pace and there is better road connectivity to nearby towns.

However,only a few households in the village have access to electricity. In such a situation,how would a household spend its discretionary income?

Those households that have access to electricity and can afford electric durables would purchase them. However,for others who can afford but are not sure about when they would receive electric power supply,it would not make sense to spend discretionary income on such goods.

In fact,Crisil estimates suggest that the loss of potential demand due to poor access to electricity in rural India is significant; nearly 12 million additional rural households in Uttar Pradesh and 4 million more in rural Bihar would have owned electric fans by 2009-10 had there been better access to electricity.

Moreover,each of these two states would have had 5 million more households owning a television set.

In rural Bihar,only one in 10 households reported access to electricity in 2011 whereas in rural Uttar Pradesh about one in four households had access to electricity. By contrast,in rural Punjab and Kerala over 90 per cent of households have access to electricity.

Due to poor electricity access a number of rural households are withholding purchases of consumer durables although they can afford to buy them. In relatively semi-urban areas of the country,where household incomes have risen sufficiently,a similar story may be playing out in terms of loss of demand for durables such as washing machines due to the lack of regular and sufficient water supply. Regular,better-quality water supply would,of course,also make rural Indians healthier.

A contrasting story appears to have materialised in two-wheelers. An improvement in road connectivity between 2004-05 and 2009-10 appears to have resulted in a sharp pick-up in ownership of two-wheelers in several states including Bihar,Orissa,and Rajasthan.

Overall,better provision of infrastructure services is evidently essential to raise the quality of life of India’s rural populace,along with improvement in health and education facilities.

This is especially true in India’s relatively poorer states as better infrastructure would help reduce regional disparities within rural India in terms of spending patterns (even as incomes are rising steadily in line with economic growth).

Sufficient,good quality infrastructure contributes positively to economic growth by reducing costs and raising productivity of industries. Access to basic infrastructure is,however,equally important to ensure that rural population also enjoys the fruits of higher incomes as much as those in the urban areas.

Author is Principal Economist,Crisil

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