National Rural Infrastructure Development Agency

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Why Invest in Rural Infrastructure?

Anil Sharma and Jyotsna Bapat

India despite having comparative advantage in agriculture has not been able to exploit the true potential of this sector. One of the main reasons for this is the gross inadequacy of post harvest infrastructure. This is reflected in some of the statistics presented below.

It is estimated that forty per cent of the country’s villages are without proper roads. The failure to achieve targeted capacity addition in the case of energy led to an increase in shortage from about 8 per cent at the beginning of the eighth Five Year Plan (FYP) to 12 per cent by the end of the Plan. As a consequence, it is doubtful if there is any significant change in the percentage of villages electrified to total number of villages, which was 85 per cent at the beginning of the eighth FYP.

Total output of fruits and vegetables in the country during triennium ending (TE) 1997-98 was 123.7 million tonnes but the cold storage capacity as on December, 1998 was only 11.94 million tonnes, which works out to be 9.7 per cent of the total output of fruits and vegetables. Further, the installed capacity of fruits and vegetables processing is only 2 million tonnes, which is about 1.6 per cent of the total production of fruits and vegetables. The utilisation of this installed capacity is even lower.

Only two airports in the country (Delhi and Bangalore) have dedicated terminals for handling perishables. The general facilities at the sea ports are also not commensurate with the requirements. Due to the congestion and low productivity the average pre-berthing detention and the average turn around time on India ports are 2.1 days and 5.9 days, respectively. These averages are very high compared to even some of the newly industrialised countries such as South Korea and Singapore, where the combined pre-berthing detention and turn around time is only one day.

The general lack of infrastructure far and wide leads to wastage and delays, which raises the cost of agricultural commodities. Therefore, it is not surprising to know that about 10 per cent of the total output of food grains and about 30 to 40 per cent of the total output of fruits and vegetables get wasted every year. Of course these estimates vary from commodity to commodity and area to area. But taking these average values of losses at 10 per cent for food grains and 35 per cent for fruits and vegetables, the value of estimated losses works out to be Rs. 11861 crore in the case of food grains and Rs. 24570 crore in the case of fruits and vegetables, respectively during TE 1997-98.

Not only this, the lack of general infrastructure in rural areas leads to huge inefficiencies in the distribution chain from the producer to the consumer. Just to cite an example, in most of the developed countries there are only two or at the most three intermediaries in between the producers and the consumer, but in a country like ours there are at least five to six intermediaries in between the producer and the consumer. Each of these intermediaries adds to the final cost of agricultural commodities and makes them expensive. Ultimately the consumers pay more than what they would have paid if there were fewer intermediaries. As a consequent, producers get only 50 per cent of the final price paid by the consumer in the case of cereals and 40 per cent in the case of fruits and vegetables.

These facts clearly demonstrate the importance and the urgency of raising investments in rural infrastructure. Such investments would not only reduce losses, eliminate large number of intermediaries in between the producer and the consumer and increase farmer’s share in consumer’s rupee will also have a significant impact on rural poverty.

Take the case of rural roads. It is a known fact that rural roads have positive externalities. Studies undertaken by NCAER in Haryana State (Bhiwani district), indicate that setting up of connecting roads have resulted in increase in population density, literacy levels, work participation in industrial participation, increase in irrigated area, and increase in electrical connection mainly leading to increase in pump sets, tractors and tubewells (Chawla, S R et al. 1981). Subsequently study on rural connectivity in Assam Karbi-Anglong district also indicates that accessibility of roads have a positive impact on low birth and death rates high literacy trends among both sexes higher intensity of cropping and modernisation of agriculture (Chawla S R et al 1986). Single point study (Gumber and Visaria 1992) of Matar Taluka in Gujarat indicates that within ten years of the taluka gaining 100% irrigation capacity number of villages connected by rural metal roads increased from 41 to 60 during 1971 to 1981. These changes in the taluka are accompanied by increase in farm and non-farm employment literacy level increase in density of population. On an average 65 people per village travelled by bus every day. The average population size of a village is 1500. Thus though the studies validate the positive externalities of a road coming to a village there is no direct and casual relationship between construction of roads and village development.

A study by SAI Infrastructure Division of the World Bank conducted in 1996 in Bangladesh demonstrates clearly the positive effects of metal roads on increase in motorised vehicles (autorichshaw bus truck et. P:23), vehicle density and passenger kilometres. The farm gate price of rice (7%), land under irrigation (105%), fertiliser use (92%), percentage of female workers (135%), wage incomes (36%), household income (8%) and income per acre of field crop (20%) are higher (p: 29) in villages that have feeder roads type B (indicting metal road connecting the village to growth centre) versus villages that have earth roads. The other studies (Daibhavi, et al 1990, Bhatia M S 1999, AshokKumar 1998) looking at the relationship between rural infrastructure in general in India demonstrate a clear and positive relationship between increase in rural employment, per capita income, reduced poverty ration and an equitable distribution of benefits.

A more recent study by the International Food Policy Research Institute shows that expenditure on roads has a sizeable impact on rural poverty through productivity growth and also due to increases in non-agricultural employment and higher wages. Estimates shows that for an each increase of Rs. 10 lakh in investment in roads, 165 poor people would be lifted above the poverty line.

References:

  • Bhatia M S 1999. ‘Rural Infrastructure and Growth in Agriculture’ Economist and Political Weekly March 1927.
  • Chawla S R et al 1981 ‘Socioeconomic Aspects of Rural Roads in Bhiwani District, Haryana. NCAER, New Delhi.
  • Chawla S R et al 1986 ‘Socioeconomic Aspects of Rural Roads in Karbi-Anglong, Assam’ NCAER, New Delhi.
  • Dadibhavi R V and Vaikunthe L D 1990 ‘Infrastructure for Rural Development: a study of regional disparities’ Journal of Rural Development.
  • Fan, Shenggen, Peter Hazell and Sokhdeo Thorat, 1999. ‘Linkages between Government Spending, Growth and Rural Poverty’ International Food Policy Research Institute.
  • Gumber A. and Visaria P 1991. ‘Agricultural Growth, Social Overheads and Diversification of Economic Activities’ The Gujarat Institute of Areas Planning, Working Paper Series, 39, Gota, Ahmedabad.
  • Kumar Ashok 1998. ‘Role of Science and Technology in Rural Infrastructure Development’. Journal of Rural Development.
  • SAI Infrastructure of World Bank 1996 ‘ Bangladesh Rural Infrastructure Strategy Study University Press Limited, Dhaka, Bangladesh.
  • Sharma, Anil, Rakhee Bhattacharjee and Parmod Kumar 2000. ‘Infrastructure Development Schemes for Agricultural Exports: An evaluation’ NCAER, Mimeo.
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