Kurukshetra: 21st Jan 2008

RURAL INFRASTRUCTURE AND ECONOMIC DEVELOPMENT

Dr. Md. Tarique2

Infrastructure development has a key role to play in both economic growth and poverty
reduction. Failure to accelerate investments in rural infrastructure will make a mockery
of efforts to achieve the Millennium Development Goals in poor developing countries
while at the same time severely limit opportunities for these countries to benefit from
trade liberalisation, international capital markets and other potential benefits offered by
globalisation.

I. Introduction:
Infrastructure development has a crucial role to play if India is to sustain its high growth,
which must become more inclusive as the country matures. While there is large variation
in the state of rural infrastructure among developing countries, most lower-income
developing countries suffer severe rural infrastructure deficiencies. Deficiencies in
transportation, energy, telecommunication and related infrastructure transform into
poorly functioning domestic markets with little spatial and temporal integration, low
price transmission and weak international competitiveness.
Despite the backbreaking reality that development of rural infrastructure is important to
promote growth and poverty alleviation and high economic rates of return to investments
in rural infrastructure, neither national governments nor international aid agencies seem
to prioritise investments in the construction of new infrastructure and maintenance of
existing infrastructure. Much of the required investment is of a public goods nature and
thus most of the infrastructure investments must come from public sources, while public-
private partnership should be pursued when appropriate. Failure to accelerate
investments in rural infrastructure will make a mockery of efforts to achieve the
Millennium Development Goals in poor developing countries while at the same time

2
Lecturer, University Deptt. of Economics, B.R.Ambedkar Bihar University,
Muzaffarpur. e mail: tarique169@yahoo.com

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severely limit opportunities for these countries to benefit from trade liberalisation,
international capital markets and other potential benefits offered by globalisation.
II. Rural infrastructure and agricultural development:
The importance of good infrastructure for agricultural development in developing
economies is widely recognised. In one of the technical background documents for the
World Food Summit, held some 12 years ago, it is concluded that “Roads, electricity
supplies, telecommunications, and other infrastructure services are limited in all rural
areas, although they are of key importance to stimulate agricultural investment and
growth” (Food and Agriculture Organization of the United Nations (FAO) 1996, chapter
10, p.15). The document further argues that “Better communications are a key
requirement. They reduce transportation cost, increase competition, reduce marketing
margins, and in this way can directly improve farm incomes and private investment
opportunities” (ibid). Investment in infrastructure is essential to increase farmers’ access
to input and output markets, to stimulate the rural non-farm economy and vitalise rural
towns, to increase consumer demand in rural areas and to facilitate the integration of
less-favoured rural areas into national and international economies. In India, Gross
Domestic Product during 2000-05 grew annually by 7% whereas the average annual
growth rates for the agriculture and industrial sector during the same period was 2.5%
and 7.5% respectively. The overall average annual growth rate for low income
economies taken together during the same period for GDP, agriculture and industry was
6.1%,3.0% and 6.9% respectively (World Development Indicators-2007). One of the
important reasons for this lopsided growth performance of agriculture sector is the lack
of proper infrastructural facilities in rural areas.
III. Rural infrastructure and poverty alleviation:
The impact of rural infrastructure on poverty level is significant particularly in the
context of achieving Millennium Development Goals (MDG) in the developing
countries whose first and the most fundamental goal is the halving of extreme poverty by
2015 (where the comparison is between 1990 and 2015).Any investment on
infrastructure leads to an increase in the real income in both agriculture and non-
agriculture sectors leading to a decline in the poverty level. A direct contribution to
poverty alleviation is being made by a reduction in the consumption level with the

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provision of essential services like health & housing facilities, access to safe drinking
water and basic sanitation, particularly in the initial stage of development. Provision of
micro-credit along with some of the basic infrastructure facilities can be quite successful
in generating incomes in both small-scale agriculture and, in particular, in small-scale
nonagricultural rural enterprises and hence exerting as a catalyst in the poverty
alleviation. The introduction of fixed and mobile phones to the rural poor by Md. Yunus,
the pioneer of Grameen Bank and a revolutionary in the field of micro-credit, has
provided new opportunities for income generation and poverty reduction in Bangladesh
is a well documented fact now. In India, a large disparity in rural and urban poverty is
found. This disparity is even more in those states where the dualistic character of rural-
urban divide is of severe nature; like in Bihar the population below poverty line in 2004-
05 on the basis of URP (uniform recall period) consumption in rural area was 42.1%
against the urban figure of 34.6%. All these clearly call for investment in the rural
infrastructure development.
IV. Rural infrastructure and international competitiveness:
The potential benefits of trade liberalisation and globalisation in a developing economy
like India where majority of the population lives in rural areas and agriculture still plays
an important role can’t be obtained without making significant investments in rural
infrastructure and related institutions such as roads, transportation, and market
institutions. It will be only after that the low income developing countries and low
income communities will be fully integrated into the process of economic globalisation.
China’s recent experience is a burning example in this direction. During the reform
period the dualistic character of China has been further strengthened with a large share
of rural population living in remote areas with meager infrastructure facilities has further
fallen into poverty whereas people in urban areas and rural areas with good
infrastructure facilities have been benefited with the opening of the economy by
generating more trade. Such a development is likely to create social instability in the
long run. Hence, it can easily be said that one of the key determinants of international
competitiveness would be the availability of adequate and efficient domestic
infrastructure. Better domestic infrastructure could contribute to international
competitiveness through at least three channels: (1) improving price competitiveness; (2)

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improving non-price competitiveness; and (3) attracting foreign direct investments
(FDI).
V. Rural Infrastructure Development Fund in India:
Rural Infrastructure Development Fund (RIDF) is provided for implementation of
schemes for development of infrastructure in rural areas with loan assistance from
NABARD to the extent of up to 90% of the total project cost and with budgetary support
for the remaining portion of the project cost. The programme was introduced and set up
in NABARD in 1995-96 with an initial corpus of Rs. 2000 crores and has been hitherto
implemented by the Finance Department as the Nodal Department. As per revised
guidelines of RIDF issued on 12.11.1999, the subsequent phases of the programme have
been decided to be implemented by this Department as the administrative department
though the Finance Department continues to be Nodal Department. The XI tranche for
RIDF was announced in the Union Budget for 2005-06 with an allocation of Rs. 8000
crore making a total corpus of Rs. 50,000 crore. The corpus of RIDF XII increased to Rs.
14,000 crore (including Rs. 4000 crore for rural roads) during 2006-07. The total corpus
of RIDF (Tranche I to XII) aggregated to Rs. 60,000 crore. The cumulative amount
sanctioned and disbursed to state governments upto January 25,2007 was Rs. 58.795.36
crore and Rs. 34.643.87 crore respectively. During 2006-07 upto January 25, 2007,
amount sanctioned and disbursed was Rs. 7810.85 crore and Rs./ 3306.6 crore
respectively. The first five tranche of RIDF (I to V), have since been closed and the
phasing/period of implementation in respect of project under RIDF VI to IX tranches
was extended upto March 31, 2007. The scheduled dates of closure of RIDF X, XI and
XII are March 31, 2007, 2008 and 2009 respectively.
The following table shows the sanctions and disbursements under various sectors under
RIDF. The figure reflects a gap between sanction and disbursement level. The gap is
very large in case of the developmental projects related to social sector and power sector.
This is definitely not a good sign for a healthy economy.
Table: Sanctions and disbursements under various sectors under RIDF (As on
March 31,2006) Rs. Crore
Sector Sanctions (I) Disbursements (II) II as % of I
Irrigation 15,105.5 10,841.7 77.77
Rural roads and 20,290.4 14,935.6 73.61

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 bridges
Social sector 4,128.1 2,371.2 57.44
Power sector 1,327.7 846.0 63.72
Others 3,539.0 2,342.8 66.20
Source: NABARD
VI. Conclusion:
Infrastructure development has a key role to play in both economic growth and poverty
reduction. The infrastructure supply and services are particularly poor in rural areas,
although urban infrastructure is also under pressure. A massive investment campaign for
the construction of new rural infrastructure and maintenance of existing infrastructure in
low income developing countries is long overdue. Without such a campaign, the many
plans, goals, and targets—including the Poverty Reduction Strategy Papers, the
Millennium Development Goals, and many other declarations—will not be achieved.
Furthermore, the potential benefits embodied in globalisation are not likely to be
captured by low income developing countries and their poor people. Investors,
policymakers and citizens alike severely sense the constraint of physical infrastructure
on economic growth. Many of the components for rapid economic growth and poverty
reduction in India are already in place and the transformation of the lives of millions
seems within reach. Yet there are miles to go.