Does infrastructure now generate growth? And measurement of financial inclusion

The impact of infrastructure on growth of GDP and employment

My column in the Business Standard today is Does infrastructure now generate growth?

The traditional argument on the importance of infrastructure was as follows. In the modern world, small steps of production take place at geographically dispersed low-cost production locations. Efficient transportation is essential for moving raw materials and sub-assembles across these production locations. Therefore, to make it possible for Indian workers to participate in globalised production, high quality infrastructure is a pre-requisite. In this chain of reasoning, there is a causal connection from better infrastructure to private investment and then jobs.

A great deal of progress has taken place in India on better infrastructure. But private investment and growth in employment has fared poorly. This raises questions about the extent to which, today, there is a causal impact of better infrastructure for growth in GDP and employment. We should take two steps back and decipher the binding constraints that hamper private investment and employment. The rule of law is the most important infrastructure of all.

Measuring financial inclusion: a simple input-based measure

Everyone loves financial inclusion. Policy makers like to push financial inclusion. ESG investors want funds and portfolio companies that do financial inclusion, and there is a fresh wave of concern about `greenwashing’ by financial firms and by ESG funds. Measurement of financial inclusion is required, in order to establish feedback loops for the policy process, and to solve principal-agent problems in ESG investment for financial inclusion.

On 3 July, Geetika Palta, Mithila A. Sarah and Susan Thomas have an article on The Leap Blog, Measuring financial inclusion: how much do households participate in the formal financial system? They propose an inputs-outputs-outcomes approach to thinking about the task of financial inclusion, and build a first input-oriented measure at the level of the household. An array of new facts about financial inclusion in India are visible in their work. In the standard recipe of phenomenological research, this measure opens the way for research on the causes and consequences of financial inclusion.