Building world-class infrastructure for competitiveness

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: World-class infrastructure is not only the key to a globally competitive economy but is also critical for improving productivity across all sectors. Inadequate and poor infrastructure is the foremost constraint in India’s economic growth.

The global financial crisis is already having a serious impact on the Indian economy which may get accentuated in the next one to two years. According to government and industry reports, numerous infrastructure projects across the country are getting delayed on account of various factors, including lack of financial resources which the global financial crisis has further aggravated.

Therefore, a massive infusion of financial resources into the infrastructure sector is not only important for establishing India as a globally competitive economy but also the need of the day to enhance aggregate demand by pump-priming the economy which is showing all signs of slowing down. The drying up of foreign flow of funds and the high cost of domestic finance is making this difficult.

The current level of annual gross capital formation in the infrastructure sector is estimated to be about 5% of GDP and it needs to be ramped up to at least 9% during the course of the 11th Five Year Plan if the targeted rate of economic growth of 9% is to be achieved. It is well established that in growing economies, the rate of growth in the demand for infrastructure outstrips the rate of growth of GDP. This would require a very significant scaling up of investment from public as well as the private sector.

According to estimates, the infrastructure sector in India needs infusion of $500 billion over the 11th Plan. The government cannot fund this level of investment required through budgetary or public resources. The investment requirement for meeting the infrastructure deficit in India is such that it can not be met by relying on the public sector alone. It is projected that the share of the Central Government, State Governments and the private sector in this will be 37%, 33% and 30% respectively.

But availability of funds is not the only issue. Concerted efforts are required by the government on several fronts to implement an action plan which provides a dynamic thrust to the infrastructure sector, including infusion of large financial resources, both private and public, so that there is a multiplier effect on the economy and the ripple effects of the global financial crisis are minimised.