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Effects of Public Investment in Infrastructure on Growth and Poverty in India


  • K. N. Murty

    (Indira Gandhi Institute of Development Research)

  • A. Soumya


Counter factual policy simulations of sustained increase in public investment in infrastructure, financed through borrowing from commercial banks, shows substantial increase in private investment and thereby output in this sector. Further, due to increase in absorption, real private investment and thereby output in all the other three sectors also seems to increase, which sets-in motion several other macro economic changes. A 20% sustained increase in public investment in infrastructure, which is 0.5% of GDP and 2.7% of total govt. revenue in 2000-03, can accelerate the real macro economic growth by 1.8% in the medium to long-run (6-10 years after the policy change). This will be accompanied by a 1.4% fall in wholesale price index and 0.2% decline in the rate of inflation. Sectoral prices, except that of agriculture, also decline to varying extent, the steepest decline being for infrastructure price. Further, this increase in income will lead to 0.7% reduction in poverty in rural India. This shows the potential for achieving the much-debated 10% aggregate real GDP growth in the Indian economy.

Suggested Citation

  • K. N. Murty & A. Soumya, 2006. "Effects of Public Investment in Infrastructure on Growth and Poverty in India," Macroeconomics Working Papers 22373, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:macroe:22373

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    References listed on IDEAS

    1. K.N. Murty & A. Soumya, 2011. "Macroeconomic effects of public investment in infrastructure in India," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 4(2), pages 187-211.
    2. K. Krishnamurty & V. Pandit, 1996. "Exchange Rate, Tariff and Trade Flows: Alternative Policy Scenarios for India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 31(1), pages 57-89, January.
    3. K.N.Murty & A. Soumya, 2006. "Macroeconomic effects of public investment in infrastructure in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-003, Indira Gandhi Institute of Development Research, Mumbai, India.
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    Cited by:

    1. Syed Ammad Ali & Qazi Masood Ahmed & Lubna Naz, 2016. "Public spending on human capital formation and economic growth in Pakistan," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 23(1), pages 1-20, June.

    More about this item


    Public Inversment; Infrastructure; Growth; poverty; India;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures


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