News: ‘India needs infrastructure spend of 8% of GDP’

(RTR 16/05/2007) New Delhi - India must raise the share of investment in infrastructure to 8 per cent of gross domestic product by 2011/12 from less than 5 per cent now to sustain high growth, a senior government official said on Wednesday.

India's Planning Commission has set a target of an average annual growth rate of 9 per cent from 2007 to 2012, for which the country requires $1 trillion investment across various sectors.

Infrastructure alone is estimated to need $320 billion in this period.

"Investment in infrastructure is less than 5 per cent of GDP. This should rise to 8 per cent by 2011/12," said Montek Singh Ahluwalia, the deputy chairman of the planning panel that provides key economic guidance to the government.

"If we are seriously planning a 10 per cent GDP growth, we need much more investment," Ahluwalia told a construction conference.

India's GDP is estimated to have expanded 9.2 per cent during fiscal year to March 2007, taking it close to $1 trillion.

Analysts and research agencies expect growth to moderate to about 8.0-8.5 per cent in 2007/08 due to the impact of monetary tightening in the early part of 2007.

"High interest costs will have an impact at the end of the day," Ajit Gulabchand, chairman of Hindustan Construction Co. Ltd., told reporters at the conference.

"There is also a talent shortage in engineering and construction industry," Gulabchand said.

Economists say one of the key obstacles to sustained high growth for India is the number of bottlenecks in its infrastructure. Ports are overcrowded, airports are overcrowded and most of the country faces regular power shortages.

The engagement of private players in infrastructure projects would reduce the burden of government, K.V. Rangaswami, a senior official of engineering and construction firm Larsen & Toubro Ltd., said on the sidelines of the conference.

But the government had to make available land and other facilities for infrastructure projects, he said.

In addition, high prices of commodities like cement would also impact construction activities, he said.