What explains regional imbalances in public infrastructure expenditure? Evidence from Indian states.

Literature on regional growth suggests that divergences in infrastructure is a major factor behind the wide and persistent imbalances in regional growth in India. Using a state infrastructure expenditure function, possible factors that determine infrastructure expenditure and its role in the regional imbalance in infrastructure creation across 14 major Indian states are examined in the present paper. The study indicates that such factors as lagged expenditure, resource mobilization and per capita income may cause varying amounts of infrastructure expenditure across states. It also indicates that spending by the infrastructure-deficit states, political stability and positive spatial dependence in infrastructure expenditure have a balancing effect on infrastructure creation across regions. Those results suggest the need to do the following: (a) harness the favourable factors influencing public expenditure that include improving the financial capacity of the infrastructure-deficit states; (b) strengthen the positive spatial dependence among states through the creation of interstate infrastructure networks, such as railways and national highways; and (c) enable a conducive investment climate, which could boost competition among states for improved infrastructure creation.