New Delhi: India’s economy will continue to buzz next year despite US credit worries and high oil prices, but sustained rapid expansion could only be built on better roads, ports and power supplies, a top Asian Development Bank official said.
Rajat Nag, managing director general of the Manila-based bank, said on Tuesday he was sticking to a forecast of 8.5% growth for 2008, which he termed as “healthy”.
India’s economy is largely driven by domestic demand and exports were now more service and technology orientated, which made them less vulnerable to volatility in the United States, he said.
“Our estimate is that for India, China and all of Asia there will obviously some effect but not much. The tremors will be light,” Nag told Reuters in an interview on the sidelines of the World Economic Forum’s India Economic Summit.
“Strengthening of the rupee, higher oil prices — these are of course risk factors. But the most fundamental one we feel is the infrastructure deficit.”
The Indian economy, the world’s fastest growing major economy after China, has grown at an average 8.6% in the past four years and is likely to grow at similar levels in the current fiscal year as well.
But this scorching pace has left roads, ports and airports choked with traffic and goods, and chronic power shortages across the vast South Asian nation threaten long-term growth.
Nag said India needs to urgently implement key infrastructure projects, and it was imperative to build effective public-private partnerships.
“The issue is not whether we need public-private partnerships the issue is how we can make them work better,” Nag said.
“The policy framework is robust. We are giving very high marks. Now it is really getting down to the nitty gritty of implementation.”
USE FOREX RESERVES
At the same summit, a leading Indian planning official said the country had to raise investment in infrastructure to 9% of gross domestic product by the fiscal year 2011/12 to maintain growth at 9-10%.
Nag said it should go even further.
India would need to spend $1.6 trillion over the next 10 years on infrastructure, and the government must raise sector spending to at least 10.9-12.0% of GDP over 5 five years.
“If we do not handle the infrastructure deficit it will not be possible to continue to sustain growth,” Nag said.
“The world does not owe us anything. The world will move on with or without us,” he said.
Chief executives of multinationals and senior Indian policymakers are gathering at the WEF India Summit, ahead of the WEF’s main annual summit in Davos early next year, to discuss the sustainability of India’s growth and its emergence on the global economic stage. The conference ends later on Tuesday.
Nag said part of bulging foreign exchange reserves should be used for infrastructure projects only after due diligence and proper safeguards.
“Our point is that reserves first and foremost be used ... against any balance of payments crisis or to protect your currency. And very fortunately, India as well as other countries in Asia have enough reserves for the purpose.
“We also feel that very much of a good thing can be a bad thing, and therefore we think, yes, there is merit in looking at the reserves for investment in infrastructure but it must be done with due diligence, it must be done with due safeguards.”
India has $272.28 billion in foreign exchange reserves and has been debating for a few years whether it can put them to use in its drive to upgrade its infrastructure.