Why Do Indian States Differ in Their Infrastructure Development ?

The literature suggests that one of the main factors behind the interstate inequality ineconomic development in India is the variation in the level of infrastructure development. However, unequalinfrastructure development across the Indian States is less understood. This study empirically analyzes various factors(economic, fiscal, demographic, social, institutional, and political) to explain interstate infrastructure inequalityusing a panel data set for 18 states in India between 2004 and 2020. Employing the principal component analysistechnique, three separate infrastructure indices are developed for physical, social, and financialinfrastructures. The relationship of each index with its explanatory variables is estimated using System GeneralizedMethod of Moments. The results show that economic factors—including economic performance, financialdevelopment, investment, and economic structure—are more influential on physical infrastructure. For socialinfrastructure, in addition to economic factors, fiscal and demographic factors are more influential. Meanwhile,economic and demographic factors are found to drive financial infrastructure. Financial development fostersphysical infrastructure, while its impact on social infrastructure is weak.