India needs comprehensive infrastructure index

Vision, it is said, is the art of seeing things invisible. Consider, for instance, public policy design to boost production, manufacture and exports. The fact is that increased participation in the global economy has now been established as a necessary condition for sustained growth and development.

The globalisation of production does offer tremendous possibilities for industrialisation, income generation and better living standards. In tandem, what is of vital import is “appropriate domestic institutions and policies”, for greater integration with the world economy.

A recent research paper at the Rochester Center for Economic Research in the US finds striking relationship between the growth in manufactured exports and country-specific “service links” such as power and transport. The study, carried out at the University of Rochester, which publishes high-impact academic journals like the Journal of Financial Economics and the Journal of Monetary Economics, emphasises “the crucial importance of the cost of service links’’ for stepped-up export of manufactures.

Relatively low-cost and reliable trade-related infrastructure services have been shown to have strong correlation with export performance. No doubt, the setting up of service links such as roads, ports and electricity supply entail substantial fixed-costs, involving both “sunk” start-up costs and maintenance costs. But infrastructure constructions are largely one-time costs and it is the availability of competitively priced service links that revs up manufacturing exports, says the paper.

The study uses international data on such service links as communication and transport costs in “production blocks” worldwide. The idea is to have an overall index of the costs of various service link activities to figure out how they affect export realisation.

The key insight that the research offers is that the quality of an economy’s service links is “decisive” on export growth. So, if policymakers here are keen on boosting exports, particularly those of manufactures, the way ahead is to get cracking to improve and revamp service links pan-India.

The paper measures the quality of a country’s service links “through a synthetic measure of infrastructure”. The index was built using 12 international data sets to number crunch three sub-indices for telecom, transport and electricity. Once the sub-indices were calculated, they were each given a weight of one-third and used to figure out the overall composite service link index.

The measure for telecom was based on four variables: main-line subscribers per capita; cell-phone subscribers per capita; average cost of a call to the US; average delay in getting a phone line connected. Next, the transport service link measure was on the basis of four parameters: percentage of roads paved; railway track per square km; number of air transports per capita and average time to import.

Economic times