India must hike infrastructure spend to 9% of GDP

India must hike infrastructure spend to 9% of GDP

New Delhi: India must raise its infrastructure investment to 9% of gross domestic product by the fiscal year 2011/12 to maintain an average annual growth rate of 9-10%, a senior government official said.

Infrastructure investment to GDP ratio was an estimated 5% in 2006/07, Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, told the India summit of the World Economic Forum on Tuesday.

“By any standards this was inadequate. We need to increase this not only to get to a reasonable level but also to make up for an accumulated infrastructure deficit," he said.

The government was aiming for 9% investment in infrastructure by 2011/12, “so essentially 5% goes to 9%," Ahluwalia added.

Asia’s third-largest economy has averaged 8.6% growth a year for the past four years.

But economists and business executives say one of the greatest challenges facing India in its drive to step up long-term economic output, create jobs and cut poverty, is its poor roads, ports, rail network and rural infrastructure.

India’s finance minister agrees.

“Our infrastructure deficiencies have become more visible because of high growth," Palaniappan Chidambaram told a parliamentary panel in September.

“The most visible indicators of overstretched infrastructure are India’s congested highways, airports and ports."

India has set a goal of average annual growth of 9% for this year and the next four years with the expectation it will touch 10% by 2012, but Ahluwalia said this would not be achieved unless it made a big effort to boost infrastructure.

“This target of investment that we’ve outlined probably adds up to $500 billion over a five-year period. Of this $500 billion about 30%, which is about $150 billion, would be the share that should be coming from the private sector."

He said while $150 billion seemed a lot from India’s point of view, it was not that large an amount to attract from global capital markets, assuming stability returned to the markets over the next 12 months.