The major factor of negligence of country side is insufficient funds.That is what this fact justifies."India has said it needs investment of $500 billion in infrastructure during the five years to 2012 and has recently made a renewed push to develop roads with a target of building 20 kilometres (12 miles) per day." Now it depends upon state government and central government. If a state government does not have enough money to spend then it would either seek money from central Government or from World Bank. A Government needs to justify, why it is spending money and what are the possible outcomes from this. For an example, when a new road is built, would it reduce the transport cost for industry by cutting travel times and fuel costs? Will the government be able to generate enough out of the money invested? Problem is that State Government is not able to generate tax revenues out of it policies or because of high subsidies which left a very little room for spending upon infrastructure. To generate higher revenues, a Government would require private investment that is open doors for private firms to jump in its projects. That is Government would require liberalization of its business. For example with the recent liberalization airline business has introduced new low cost carriers to spring up. Jet Airways, Kingfishers and Deccan, cutting the cost of domestic air transport dramatically. Same is with other business.
As author of this thread has questioned that even after 62 years of independence, why the pace of development is so slow and lop-sided?
The answer to that is one should look into number of factors. During the three decades that followed by independence, India's annual average rate of real GDP growth was a mere 3.5 % a year. A throttling system of Government licensing and quotas, which was set up by Nehru, was refined by his daughter, Indira Gandhi to the point where it became virtually impossible for companies to produce anything. The liberalization of this system known as 'the licence raj'; began in 1980's helping real GDP growth to accelerate to an annual average of 6 % per year in that decade. Further extension to this, after financial crisis in 1991, India's second spate of liberalization took place when Dr. Manmohan Singh was finance minister. This liberalization was quite radical, with cuts in taxes and tariffs and the virtual abandonment of licensing and quotas. For more information on this policy please refer to this link
http://en.wikipedia.org/wiki/Licence_Raj. And go through the consequences of this policy.
Here is the snippet from the above link : The Licence Raj is considered to have been significantly reduced in 1991 when India had only two weeks of dollars left: "In return for an IMF bailout, Gold bullion was transferred to London as collateral, the Rupee devalued and economic reforms were forced upon India."[8] The federal government, with Dr Manmohan Singh as finance minister, reduced licensing regulations; lowered tariffs, duties and taxes; and opened up to international trade and investment.[8]
When the main phase of economic liberalization began in 1991, peak import tariffs on non-agricultural goods were 300% and many import tariffs were subject to quantities controls; in 2006-7, the peak tariff was down to 12.5% which is still higher than China's equivalent tariff of about 5 %.
Samar in his one his post raised a very good point about Sez, its significance and what are major barrier to this policy of central government. Sez are essentially a way to introduce new rules favourable for business in specially designated areas but not a country as whole. This facilitate in attracting multinationals to locate their factories, so when the government announced in 2005 that it planned to boost the incentives available in special zones it looked like a way for India to sidestep some of the obstacles to its growth. Companies would exempt from corporate income tax for five years, with further concessions for another ten, and from all customs duties, as well as enjoying faster Sez are approved by central government, land acquisition for the zones is handled locally(State Government). And in many cases rather than leaving investors to negotiate directly with the existing landowners, state government have been acting intermediator. So this policy has put forward by central Government and leaving state government to negotiate with the private owners for acquisition of a land. The failure of state government in the land acquisition could cause private firm to withdraw from its project. For an example, SEZ planned at Nandigram for a chemical plant that was to be built by an Indonesian conglomerate, the Salim group, and a new car factory at Singrur (though not an sez) for tata motors, India's biggest car maker. Another example is when Laxmi Mittal threatens to exit its 20 billion steel projects in Orissa and J'khand because of delays in land acquisition. Although Firm was supposed to look after the acquisition but a state government should facilitate it. In that case either firm has to look for some other state in India, or just withdraw its project and look for some other countries to invest in. If a state looses such projects that means that will create an imbalance of growth in a country leading to some states are very far better than others. That means people will be unemployed and poor infrastructure on top of that will also reduce a state economic performance. West Bengal is a very good example where Naxalities are able to hire more and more unemployed people and leaving a country to face internal security threats. That means Government will need to spend more and more money to tackle with such issues and will be left with no money to spend upon infrastructure. That's why our prime minister has described it as a single biggest internal security challenge ever faced by the government.
The major hurlde for a private firm to start a business in India faces infrastructure bottlenecks which is a result of red tape, difficulties of land acquisition. Infrastructure and growth of a country are interrelated. It’s a government responsibility to understand its significance and to cleverly find ways to deal with it. It depends upon Government policies to make it easier for private firm to jump into major projects and make it easier for them to invest in. For example, Roads, railways, ports and the Airports have been outdated and grossly insufficient, adding to the cost of any firm wanting to import components, export finished goods or simply ship their goods to Indian buyers. The electrical supply has been unreliable, forcing firms to take on the cost of producing their own power, which leaves them with a lot of wasted capacity. Complex labour laws make it very difficult for a firm to start a business in India.
More and more private investment (Foreign,Domestic) would not only fill the Government reserves, but will also facilitate in raising employment, more infrastructure development and eventually would lift the GDP of a country which will lead us to a Developed country.
