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Past Issue • Jul-Sep 2015

Roads to Riches? An Evaluation of the Pradhan Mantri Gram Sadak Yojana

Roads to Riches? An Evaluation of the Pradhan Mantri Gram Sadak Yojana

Infrastructure development could in many cases lead to unintended consequences, though not always negative in the short run, and hence it is important to create a macroeconomic environment conducive to growth along with creation of social infrastructure, says Professor Shilpa Aggarwal of the Indian School of Business, based on the findings of her study of the Pradhan Mantri Gram Sadak Yojana. 

In recent years, several countries and policy organisations have directed huge sums of money towards the construction of roads. For instance, the World Bank has spent $20 billion annually on transportation infrastructure since 2006, 69 percent of which has been for roads. Similarly, the government of India spent more than $30 billion on roads between 2001 and 2010.

Much of this spend is based on the belief that access to roads is essential for economic growth and poverty alleviation. However, we lack a good understanding of the true impact of infrastructure provision on social and economic outcomes. The primary reason behind this is the fact that roads (and other public goods) are usually provided based on economic, political, or social factors – for instance, they may be provided for vote-garnering just before an election. As a result, it becomes difficult to disentangle the effect of the road from that of these other factors.

In contrast, a recent road construction programme, the Pradhan Mantri Gram Sadak Yojana (PMGSY) initiated by the government of India was based on a pre-determined rule. Specifically, the government mandated that every village with a population of at least 500 would have access to a paved road to the nearest market center. This rule-based provision of roads enables researchers to measure the true impact of the road itself, independent of other confounding factors mentioned above.

 

Much of the invested funds is based on the belief that access to roads is essential for economic growth and poverty alleviation. However, we lack a good understanding of the true impact of infrastructure provision on social and economic outcomes.

 

What do we expect?

In general, we expect roads to bring about broadbased change. The main belief behind the recent spurt in road construction activity across the world is that by connecting markets to individuals, as well as to other markets, roads can spur economic activity. Specifically, when two locations are better connected to each other, they will trade more intensively. This can lead to either an increase in the availability of new goods, or a decrease in the price of goods that were already available as the transportation cost component in the final price goes down.

 

Road-construction is extremely investment intensive, and therefore, money spent on road construction diverts funds away from other social activities. Therefore, it is also important to have data-backed evidence on the efficacy of roads as a tool for economic development.

 

Further, roads can expand access to economic opportunities (for instance, I may be able to sell my goods in a new market, increasing the overall demand for my goods), which can have implications on other important economic decisions such as investments in human capital, occupation choice, and migration.

In addition, road construction can also engender social transformation by bringing about changes in access to services such as schools and hospitals. Further, in the long run, road connectivity can also improve access to modern practices and ideas by bringing remote locations closer to the mainstream.

These theoretical possibilities support a strong case for road construction. However, road construction is extremely investment-intensive, and therefore, money spent on road construction diverts funds away from other social activities. Therefore, it is also important to have data-backed evidence on the efficacy of roads as a tool for economic development. In a recently concluded research study, we turn to the unique setting of the PMGSY programme to provide this evidence.

What do we find?

Since we expect roads to have broad-based impact, the PMGSY was evaluated on a number of different dimensions.

One of the primary changes we expect roads to bring about is to increase trade between the villages and the towns to which they are connected. This should be reflected in the availability of goods as well as through a drop in the transport costs. We find evidence of both in PMGSY. Specifically, rural households in districts with greater construction activity increased their consumption of perishable goods (sensitive to transportation time) and of manufactured goods (typically made in urban areas and imported in the village). The study also showed there was a decrease in transportation costs in areas that benefited from the roads.

Road construction also improved access of rural inhabitants to the job opportunities in nearby markets. However, this had some unintended consequences. Specifically, teenagers dropped out of school and started working – there was about a 10 percent decline in school enrollment if a district went from having no rural road connectivity at all to full connectivity. Most of those who joined the labour force either started working on construction sites (boys) or in tailoring (girls). Many teenagers also reported working in animal husbandry – milk and meat are highly perishable items, and a reduction in transportation time is likely to improve their supply significantly.

Improvements in access also led to a 5 percent increase in school enrollment and attendance for younger children (5 to 14 year-olds). These gains potentially came about through two different, but closely related channels. First, access to schools improved for the children themselves (a recent study of a cycle-distribution programme among secondary school students in Bihar found similar gains in enrollment). Second, access to schools also improved for teachers, leading to a decline in teacher absenteeism, a very common phenomenon among public servants. This potentially made it worthwhile for children to go to school.

Finally, some beneficial impacts are seen for farmers. Specifically, farmers in districts with greater exposure to the road construction programme were more likely to be using fertiliser and hybrid seeds. In an average district, there was about a 3 percent increase in fertiliser usage, and 2 percent increase in hybrid seed usage. While the exact reason behind this change is unknown, one can speculate on three potential reasons. First, and most likely, roads led to a decline in the acquisition cost (travel cost) of these inputs, making them profitable. Similar evidence has been found for hybrid seeds in Kenya. Second, the construction of roads enabled farmers to fetch a better price for their produce, making upfront investments towards inputs profitable. Third, the presence of a road increased the collateral value of the land itself, relieving farmers’ credit constraints and enabling them to buy expensive inputs.

Road construction also improved access of rural inhabitants to the job opportunities in nearby markets. However, this had some unintended consequences. Specifically, teenagers dropped out of school and started working – there was about a 10 percent decline in school enrollment if a district went from having no rural road connectivity at all to full connectivity.

The verdict

The findings of this study, specifically the ones on trade, primary education, and agricultural inputs underscore the great importance of investment in road construction and have important policy implications. Universal primary education is not just a domestic priority in most developing countries, but also one of the eight millennium development goals. However, despite large budgetary allocations to the education sector, one in every 10 children of primary school age was still out of school in 2012. Results in this study show that it may be possible to close at least part of this gap merely by improving access to the existing schooling infrastructure. However, the increased probability of teenagers dropping out of schools is both unexpected and unintended. Dropping out of schools at an earlier age could potentially be reducing the lifetime earnings of these children. However, it is hard to take a definitive stand on this as the expected returns to education in rural India are debatable. Further, it must be understood that this study only analyses short-run impacts. It is possible that as family incomes go up in rural areas, school enrollment would increase. However, policy-makers may still want to design measures to mitigate the short-run effect.

 

Road construction also improved access of rural inhabitants to the job opportunities in nearby markets. However, this had some unintended consequences. Specifically, teenagers dropped out of school and started working – there was about a 10 percent decline in school enrollment if a district went from having no rural road connectivity at all to full connectivity.

 

More importantly, these findings highlight the importance of creating a macroeconomic environment conducive to growth. For instance, it has been notoriously hard to make much progress on fertiliser adoption due to perceived demand constraints such as lack of credit or limited information. In fact, governments in many developing countries, including India, provide large subsidies to promote technology adoption in agriculture. India spent 0.75 percent of its GDP on fertiliser subsidies in 1999-2000. Therefore, the uptick in fertiliser usage after road construction is noteworthy as it happened without any contemporaneous demand stimulation, and merely because the presence of roads made it more profitable for farmers to adopt this technology. Similarly, the increase in trade between villages and towns also happened spontaneously due to the ease of transporting goods.

 

Access to schools also improved for teachers, leading to a decline in teacher absenteeism, a very common phenomenon among public servants. This potentially made it worthwhile for children to go to school.

 

Therefore, the findings from this study underscore the importance of the state as an enabler of growth and development. Specifically, the adequate provision of public goods such as transportation and communication networks can increase productivity by playing a complementary role to private resources.

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