---
type: faq
question: What is the role of infrastructure spending in driving India’s growth?
topic: economic-growth
topic_title: Economic Growth
topic_url: 'https://liberty-lighthouse.vercel.app/topics/economic-growth/'
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# What is the role of infrastructure spending in driving India’s growth?

Before asking whether infrastructure spending drives growth, it is worth asking what public infrastructure actually is. The word covers everything from village roads to deep-sea ports to electricity grids — and governments invoke it to justify almost any capital expenditure. But from an economics standpoint, most things we call public infrastructure are not public goods at all. Public goods have two properties: no one can be excluded from using them, and one person’s use does not diminish another’s. A road from Mumbai to Pune has neither. You can toll it. It gets congested. What it is, at best, is a club good — a shared facility where exclusion is possible and congestion eventually kicks in. The same is true of ports, airports, and electricity grids. Private capital builds and operates all of these in various countries around the world. There is no strong theoretical reason why the Indian state must own any of them.

And yet, looking at India’s growth over the last fifteen years, government infrastructure spending has clearly played a role. [Government capital expenditure as a share of GDP nearly doubled](https://www.statista.com/statistics/1558465/india-capital-expenditure-as-gdp-share/) — from around 2.7 per cent in 2017-18 to over 4 per cent by 2023-24. But before concluding that the state stepped in admirably to fill a gap, it is worth asking why the gap existed in the first place. [Private investment has been falling as a share of the economy since 2011](https://data.worldbank.org/indicator/NE.GDI.FPRV.ZS?locations=IN), and it has not recovered because the structural conditions that make India attractive to invest in — land that can be acquired, labour laws that permit efficient hiring, contracts that can be enforced in reasonable time — were not fixed. Rather than fixing these distortions, we have gone down a path of least resistance: build highways, announce ports, cut ribbons. 

This matters because infrastructure investment only drives growth if it unlocks private activity — factories that locate near a new highway, exporters that use a new port, businesses that expand. But private capital has not moved at the required scale, because the conditions required to attract it were never created. A road connecting regions where land acquisition is still a decade-long legal battle and labour disputes take years to resolve is not transformative infrastructure. It is a road that no one uses. 

Even if the government is going to build infrastructure, the model it uses matters. The right methodology is public-private partnership: the government identifies what needs to be built, takes on some of the demand risk, and brings in private operators to finance, construct, and run the asset. This is considerably better than the state owning and operating assets indefinitely on borrowed money. Mainly because no private investor will volunteer to enter a PPP contract unless there is visibility of commercial return. Which mean only those roads will be built, which have a reasonably high chance of being used. It is not a perfect solution — the club good problem does not disappear — but it is the right instrument which keeps government funding in infrastructure accountable.