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Infrastructure is defined as those physical systems of a country’s or community’s population, including roads, utilities, water, sewage, etc. These systems are considered essential for enabling productivity in the economy. Developing infrastructure often requires large initial investment, but the economies of scale tend to be significant. Transport, water and sanitation, power, telecommunications, and irrigation are taken as infrastructure.
In recent years investment in the growth in infrastructure of India, china and Asean countries has been stated as the reason for their growth. The growth of United States, England, Canada and other developed countries is stated to be due to their high growth in infrastructure.
Different studies conducted to find the relationship between infrastructure and development has found that infrastructure capital has a significant, positive effect on economic output and growth.
Infrastructure helps economic growth by
1. By increasing the productivity – increases the marginal productivity of private capital
2. It reduces the cost of production,
3. Increases the profitability of organizations
4. Increases the incomes.
5. It has impact on cost and quality of services at international trade
6. Effect in better penetration of services
7. Providing amenities to enhance quality of life
8. Infrastructure contributes to diversification of the economy-in rural areas
Why Infrastructure helps
To create the productivity gains from urbanization.
a. Infrastructure developments, such as improved transport, which reduce workers’ time spent on nonproductive activities,
b. Clean water and sanitation raise the economic returns to labor.
c. Efficient production and financing of infrastructure services can reduce wasteful consumption of water, fuels, or land and contribute to the protection of natural resources.
Infrastructure contributes to raising the Qualitv of life by:
a. Creating amenities in the physical environment-such as cleaner water, land and air;
b. by providing connectivity to different parts of the world
c. Providing outputs which are valued in their own right–such as transportation and communication services as consumption goods;
d. by contributing to improved personal health and national integration.
e. infrastructure investment can generate employment and consumer demand in the short term, as well as in the longer term
South Korea
South Korea’s GDP grew by 2.9 percent during the 3rd quarter of 2009 (July – Sep 2009) which is all time high for the country during the last 7 years.
Major factors for growth
• South Korea’s GDP growth during the quarter is attributed to
o Growth in domestic demand
o Growth in exports
• Exports of South Korea grew by 5.1% during the last quarter
• Private sector played a big role in the growth of the economy
• The GDP growth is considered surprise as the Bank of Korea had earlier projected the economy to contract 1.6 percent during 2009.
• Robust earnings by leading exporters like Hyundai Motor and Samsung Electronics played a big role in the recovery
• The recovery was also helped by record low interest rates and big government spending.
• Bank of Korea has projected that the recovery will be 5% during the fourth quarter of the current year
Challenges
• South Korea still faces the delay in the recovery of global Economic slowdown.
• Inventory has increased while consumption and construction investment has not grown
Indian_Rupee
The Reserve Bank of India has projected that Indian economy will grow by 6.5 percent during 2009-10.
Indian economy grew by 6.7 percent during 2008-09 breaking a growth of 9% during the previous 3 years. Year 2008-09 has been one of the greatest testing years for the world economy. Faced with the greatest threat of recession, the central banks across the globe has been on its toes and had to pump in money to solve the financial crisis. The soundness of the financial institutions was tested after the fall of Lehman brothers in US.
The report prepared by RBI observes that the Indian financial system in general and banking system in particular, have withstood the adverse effects of the global economic crisis. The economy has remained robust and resilient. Although the international economic slowdown had its impact on the Indian economy, the banking sector in India was relatively immune from the crisis, as the exposure of Indian banking system to toxic assets was minimal. More importantly, the Reserve Bank’s initiatives regarding adoption of counter-cyclical prudential regulations framework, both during credit boom period as well as during the slowdown, assumed significance.
Positive signals for the growth during 2009-10
1. Industrial sector is recovering and has grown at the fastest pace in the last 22 months
2. Recovery phase in World market, especially in US and Europe
3. Low inflation growth except in food prices. Inflation is expected to reach 6% by March 2010
4. Strong growth in exports in the second half of the 2009-10
5. FDI expected to increase
Factors which need to be monitored
1. Rising food prices as there is expectation of a decline in agriculture output due to bad monsoon
2. Global inflationary pressures will be high – oil and commodity prices rising
3. fears of fiscal deterioration and concerns about inflation along with the stimulus measures
4. Decline in kharif acreage resulting in 11 million tone drop in food production, 6 mt fall in pulses
5. International economic condition can affect the Indian economy seriously.
