Diverging Paths: How Policy Missteps and PPP Reliance Have Hampered Turkey’s Infrastructure Development Compared to India’s Growth Strategy

Diverging Paths: How Policy Missteps and PPP Reliance Have Hampered Turkey’s Infrastructure Development Compared to India’s Growth Strategy

India and Turkey, two emerging economies, have both prioritized infrastructure as a key driver for long-term growth. However, their approaches and the outcomes of their infrastructure investment strategies have diverged significantly, particularly in the past five years, due to differences in policy decisions and the use of Public-Private Partnerships (PPP).

India has embarked on an aggressive infrastructure overhaul, with the government tripling its capital expenditure since 2020 and allocating ?11.11 lakh crore (approximately $133 billion), or 3.4% of GDP, towards infrastructure in its FY24/25 budget. Key sectors such as railways and road networks have seen substantial investments, with railway spending increasing by 77% and the length of high-speed corridors expanding 12-fold. This massive push aims to improve connectivity across the country, linking major economic hubs like Delhi and Mumbai with smaller regions, thereby fostering nationwide economic growth. India's emphasis on infrastructure is part of a broader strategy to support rapid economic expansion, with GDP expected to grow by 6-6.5% in 2024.

In contrast, Turkey’s infrastructure strategy has been more constrained by economic instability. The country’s 2024 budget includes significant investments in highways, ports, and other critical infrastructure. However, the overall growth target has been revised downwards to 2.7%, reflecting a delicate balance between infrastructure development and the need to control inflation, which is expected to reach 40-50% by the end of the year. This cautious approach is rooted in macroeconomic realities, such as high inflation and a volatile currency, which have undermined Turkey’s ability to pursue large-scale infrastructure projects with the same vigor as India.

Policy Errors and Impact on Turkey’s Infrastructure Investments

Over the past five years, policy missteps in Turkey have contributed significantly to the country’s lagging infrastructure progress. Mismanagement of inflation, failure to stabilize the currency, and a reluctance to implement structural reforms have hindered Turkey’s ability to finance its ambitious infrastructure goals. The government’s focus on short-term inflation control over long-term economic growth has resulted in reduced infrastructure spending and a revised growth outlook. These policy errors have forced Turkey to scale back its infrastructure projects, further exacerbating the country’s economic challenges.

Turkey’s Extensive Use of PPPs: A Double-Edged Sword

Turkey has extensively relied on Public-Private Partnerships (PPP) to finance its infrastructure projects, especially mega projects like the Istanbul Airport and the 1915 ?anakkale Bridge. While this model initially enabled Turkey to deliver large-scale projects, it has also created significant challenges. Many PPP contracts in Turkey are structured with state guarantees based on foreign currency. The depreciation of the Turkish lira has made these guarantees unsustainable, forcing the government into costly renegotiations and project delays. External shocks, such as the COVID-19 pandemic and the Russia-Ukraine conflict, have further strained the PPP model, leading to increased fiscal liabilities for the Turkish government.

Moreover, while India has also implemented PPPs, its government maintains greater control over infrastructure financing, which has shielded the country from some of the risks that Turkey faces. India’s public sector financing model allows for a more stable investment environment, reducing its reliance on foreign currency and private sector volatility. This difference in financing strategy has positioned India more favorably than Turkey in the long-term execution of infrastructure projects.

What We Have on Our Hand

Both India and Turkey have recognized the importance of infrastructure for driving long-term economic growth. However, while India is pushing aggressively forward with an infrastructure-led growth model, Turkey’s strategy has been hampered by policy errors and over-reliance on PPPs. Turkey’s economic instability, high inflation, and currency volatility have constrained its ability to effectively implement large-scale projects, while India’s stable macroeconomic conditions and greater public sector control have allowed it to leverage infrastructure investments more effectively. As a result, India is in a stronger position to harness infrastructure as a catalyst for growth, while Turkey faces a more challenging path due to its policy missteps and the limitations of its PPP model.

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