India projects up to 30% funding gap in infra investment

India projects up to 30% funding gap in infra investment

Washington: India requires $1 trillion in the next five years to create infrastructure -- key to 9% plus growth -- but expects a funding gap of up to 30% that it wants bridged by American investors.

“With a potential funding gap of 25-30%, needing to be bridged through innovative modes of financing," finance minister Pranab Mukherejee said at separate meetings with the industry shortly after his arrival here on Monday.

To sustain a growth rate of 9%, estimates indicate that investment in infrastructure will have to be of the order of $1 trillion over the next five years.

He hoped that US companies would come forward to help India bridge this gap.

The Indian economy is expected to grow by 8.5% this fiscal, up from 6.7% in 2008-09 after the 2008 global economic crisis. In the three years preceding 2008-09, the country’s economy had expanded by over 9%.

“When I took over as the finance minister, my primary concern was how to prevent the further deterioration of the growth," he said, in identical remarks, at separate meetings organized by the Institute of International Finance and the Confederation of Indian Industry.

High inflation has, however, become a cause of concern for the government, which is now betting on good monsoon for the rate of price rise to ease. Headline inflation for May provisionally crossed the double-digit level.

He hoped that once it is clear that monsoon is normal, inflationary pressure would start to ease from mid-July.

Monsoon accounts for 80% of rains India receives and 60% of the area under cultivation is rain-fed. Last year, the country’s crop production was hit owing to poor rains, leading to an upward spiral in food prices.

The government has separately been pushing financial sector reforms to sustain high growth, and a bill to increase foreign direct investment cap in insurance sector is awaiting passage. Allowing infrastructure firms access to insurance funds was a key suggestion of a panel headed by Deepak Parekh in 2007.

“We do agree that it (reform) has been delayed," Mukherjee said, attributing the delay to consensus building.

During the last five years, India has initiated reforms in direct and indirect taxes, and is working closely with state governments, he said.

The finance minister said India’s economic fundamentals are strong, giving rise to a well grounded optimism for medium and long-term prospects and noted that relatively high Savings and Investment rates should sustain a high growth momentum in the coming decades.

India’s savings and investment rate is a healthy 35% of GDP, second only to China’s over 40%.