Contribution of Infrastructure to Output Growth in India

This article examines the effect of infrastructure on output performance of India taking into consideration different types of infrastructure facilities and also creating indices of infrastructure using principal component analysis. The methodology involves time series techniques where Granger causality is also tested to determine the nature of relationship between infrastructure and output using the Toda-Yamamoto two-step procedure for non-stationary variables. The results indicate that for India there exist unidirectional relationship from infrastructure to output and the impact of the same was then determined. Upon considering the impact of growth rate of various infrastructure indicators, it is found that electricity and telecommunication growth rates have had significant and positive impact on output growth. The coefficient for electricity generation is 0.35 and of tele-density growth rate is 0.15. These results are significant considering that to ensure and enhance the growth potential of Indian economy, care must be taken to remove any bottlenecks in the provisioning of these infrastructure variables and to further improve upon the delivery of these infrastructure sectors