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How low spending on infrastructure results in large-scale distress migration

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Distress migration is one of serious issues affecting India’s Aam Aadmi. Poverty, lack of job opportunities, low-income, search for better living conditions, etc. among the many reasons that force people to leave their native villages and towns and migrate into other states. Here is an article, which explores how a state’s investment on infrastructure projects affects distress migration.

By Himadri Ghosh

Raju Rai was 17 when his mother was diagnosed with cancer, forcing him to leave his village in Jharkhand’s overwhelmingly rural Jamtara district in search of a livelihood. He’s 22 now and earns Rs 10,000 ($145) a month, painting buildings in Bangalore, about 1,980 km to the southwest.

“As a gift, God gave us poverty,” said the lean, unsmiling young man, whose chief ambition is to save enough money, find his sister a “good man” and “get her married with Dhoom-Dham (in style)”.

How infrastructure pending affects distress migration

Rai’s story is common among many of the 307 million Indians who report themselves to be migrants by place of birth, according the 2001 census report (the 2011 data is not final).

Of these, 268 million (85 percent) migrated within their state, 41 million (13 percent) migrated to another state and 5.1 million (1.6 percent) left India.

Men primarily migrated long-distance as migrant labor to earn more money – marriage was a prime reason for women – and an IndiaSpend analysis found that migration largely correlates with a state’s investment in infrastructure.

States with lower per capita infrastructure spending typically – but not always – have lower per capita incomes, sparking large migrations, according to finance ministry data.

Bihar, Jharkhand, and Uttar Pradesh are among the states with lower infrastructure spending and low per capita incomes.

High infrastructure spending states like Goa, Tamil Nadu, Maharashtra, Haryana and Gujarat also have higher per capita incomes.

So, India is witnessing wide variations in per capita income and growing levels of distress migration from low-income states, experts said.

“Such large flows of migration from village to city have unsettling political and economic effects,” said Sukumar Muralidharan, a felow at the Shimla-based Indian Institute of Advanced Study, a think-tank run by the ministry of human resource development.

Infrastructure is important, but there are other reasons

While infrastructure appears to be the overwhelming link between per capita income and migration, there are important exceptions.

Consider India’s richest state, Goa, which has a per capita income of Rs 224,138 ($3,300), the same as Indonesia ($3,491) and Ukraine ($3,082).

Goa’s per capita infrastructure spending is the highest in India, Rs 36,516. Haryana and Maharashtra stand second and third, respectively, in per capita income, and also in per capita spending on infrastructure.

Maharashtra and Delhi have high in-migration rates, accounting for 16.4 percent and 11.6 percent of the country’s total migration. The large inflow of people into states like Maharashtra (nearly 8 million in 2001) and Delhi (over five-and-a-half million in 2001) is because of the opportunities they offer.

Now consider Bihar, with a per capita income of Rs.31,199 ($589), and Uttar Pradesh’s Rs.36,250, ($534), which are less than Mali ($704) and Guinea ($539).

Bihar spends Rs 13,139 per capita on infrastructure and Uttar Pradesh Rs 9,793.

Compared to Maharashtra and Delhi, the inflow of people to states like Bihar and Uttar Pradesh is limited: Only 1,794,219 and 2,972,111 people migrated to Bihar and Uttar Pradesh In 2001.

The exceptions are evident in prosperous states with low infrastructure spending, such as Punjab and Kerala, and low-income states with relatively higher per capita infrastructure spending, such as Chhattisgarh and Himachal Pradesh.

The precise reasons are not clear, but uneven geography, diverse demography, culture and politics could be reasons for the breaks in pattern, experts said. Attention to the social sector, as in Kerala, is an explanation.

Although the responsibility for promoting equity and equitable development is shifting to the states, as IndiaSpend has reported, the Centre has a role, said Ajitava Raychaudhuri, professor of economics at Jadavpur University. “States need pragmatic planning,” he said. “Equity across states needs focused intervention from the Central government.”

The importance of backward regions, under-invested sectors and local jobs

In the power sector, the thumb-rule is that every rupee invested in generation should be backed by an equivalent sum invested in transmission and distribution, said IIAS’ Muralidharan.

“As against this 1:1 ratio, the record in India has been closer to 8:2,” he said.

Unplanned investment can be as responsible as low investment for disparities, some argue.

Samantak Das, chief economist and national director at Knight Frank India, a global real estate consultancy, explained that vote bank politics is causing disparities as people from backward states depend more on their leaders, and leaders of all hues take advantage to translate this into votes.

“We need evenly-distributed, strategically-planned infrastructure in the country. We have to have social infrastructure, physical infrastructure because infrastructure has a high positive rub-off effect on growth,” Das added.

Raychaudhuri said the future can be secure only if capital expenditure and environmental planning are increased simultaneously.

The rural-urban divide-and, migration-can be addressed by encouraging micro, small and medium enterprises locally.

As evidence grows that the job-creating potential of large industry is falling in India, migration appears to be growing.

India’s urban population has grown faster than its rural population since the last Census, according to provisional 2011 census data.

The proportion of migrants in the urban population was 35% in 2007-08, when measured by the National Sample Survey.

This intermingling plays out in growing reports of conflicts with outsiders in various Indian states.

“Migrations lead to ethnic and cultural stereotyping and intolerance towards people seen as different due to competitive politics,” Muralidharan said.

Since infrastructure spending is a major factor in economic growth, it is important that related budgetary allocations rise to India’s more backward states, particularly their backward regions, said Sidhartha Mitra, head of the economics department at Jadavpur University.

The exceptions to the rule indicate, he said, that social-sector spending is equally important. (IANS/IndiaSpend.org)

Next Story

Indian Infrastructure: Time to Refocus on The Basics

Now is the time to further push forward with policies that can help further facilitate the flow of capital into Indian infrastructure. It is also essential to realise that such changes are gradual, small iterations in the right direction can have significant positive lasting effects

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With 2019 underway, it would serve us well to look at some of the most pressing needs of Indian infrastructure. Trends in global capital markets and the needs of Indian infrastructure have broadly remained the same, but so have the challenges.

Recent news that the euro 399 billion Dutch pension fund ABP has lowered the expected investment returns over the next 10-15 years at five per cent a year on average from the earlier six per cent (Investment & Pensions Europe) shows the pressure the global pension fund community is under to deliver investment returns.

Additionally, a quick look at the Q4 2018 report of another Dutch pension fund, PFZW, shows a reduction in the current funding ratio from 103.4 per cent to 97.5 per cent. In layman’s terms, the value of current and future outflows from PFZW is higher than the value of the assets.

The data yet again drives home the point that in the face of constrained investment returns, the demand for annuity-type structures is even higher amongst the global capital providers.

While India has been aware of these trends and has made a concerted effort towards facilitating the flow of capital, now is the time to further provide impetus to the idea of “utilising global capital towards building Indian infrastructure”. The agenda for 2019 must be to build on and deal with issues that have slowed infrastructure creation in India. The core issues that need attention remain the same – local market funding to facilitate foreign capital inflows, a more efficient land acquisition strategy, better linkages in policies across infrastructure segments and, to the extent possible, allowing market prices to prevail.

Indian Infrastructure.

India needs to find a better solution towards providing local market credit to infrastructure projects to facilitate foreign capital inflows. For a capital provider, it is vital that local players partake in the risk-taking regarding infrastructure projects.

While Indian banks have cut back from infrastructure lending, a complete pullback is not feasible given the size of the balance sheets that banks wield and given the infrastructure funding requirements. The key for banks is prudent risk management and effective project selection. Additionally, other local funding sources such as the National Investment and Infrastructure Fund (NIIF) and revamped Development Finance Institution type structures will be crucial.

The fundamental reason why local funding in infrastructure projects gives foreign investors greater confidence is that knowing local capital has “skin in the game” implies more protection for their money.

Land acquisition remains a significant challenge for infrastructure creation. Recent issues that specific solar projects faced with getting access to land further elucidates this fact. The critical step here is to gradually tie-up land allocation and project allocation through the sector-specific agencies at work.

Mumbai Metro One announced on Monday that it has achieved the 400 million passenger mark on its 1,423rd day, which is almost within four years of its operations.
Mumbai metro station (Representational image). Wikimedia Commons

Bundling project and land allocation implies that for instance, when solar tenders are allocated, the planning on the associated land required is done concurrently with the tender and not after the tender process. While the issue around land acquisition is complex, land is the most crucial component of infrastructure creation in possibly every segment. Therefore, urgent attention is due.

Co-operation within infrastructure segments, especially through policies that consider sectoral interlinkages is crucial for the infrastructure ecosystem to deliver value. Power generation adds value when transmission and distribution assets can assist in giving the power to end users. Biofuels can add value when the water required to generate the raw material for them does not impede other more critical water needs in an economy.

Continually asking questions and ensuring that policy consistency is maintained across interlinked infrastructure sectors is the only way for infrastructure to indeed create value for all.

Also Read- Apple Asks Developers to Disclose or Remove Screen-recording Codes

While infrastructure assets vary significantly on the level of regulatory purview, it is essential that regulations are prudently used and do not stifle risk-taking and value creation. Asset returns need to be adequate to compensate for the risks involved to get both global and local capital to fund Indian infrastructure. Therefore, it is essential that greater focus is paid to tariff pricing, especially to the drivers of tariff rates. One size fits all solutions will lead to inefficient outcomes in the long-run.

Now is the time to further push forward with policies that can help further facilitate the flow of capital into Indian infrastructure. It is also essential to realise that such changes are gradual, small iterations in the right direction can have significant positive lasting effects. (IANS)