'Core sector needs $1,400 bn push'

Indian planners have estimated that the economy will need over $1.4 trillion to shore up infrastructure over the next decade. The figure has been finalised by the Planning Commission recently.

As against the earlier estimate of $320 billion, it is now estimated that $498 billion will be needed in 2007-12 (the 11th five-year Plan period) and another $989 billion between 2012 and 2017 (the 12th Plan period).

Massive infrastructure creation has become imperative for the Indian economy, which is facing capacity constraints. This was restricting the economy from growing by another 1-2 percentage points, Finance Minister P Chidambaram had said at the London Business School June this year. 
 

Rising appetite
Sectors	10th Plan ($199 bn) (anticipated)	11th Plan   ($498 bn) (projected)
Electricity	$70.4 bn (35.4)	$177.0 bn (30.2)
Roads	$31.8 bn (16)	$95.5 bn (16.3)
Telecom	$22.4 bn (11.3)	$76.6 bn (13.1)
Railways	$20.3 bn (10.2)	$73.0 bn (12.5)
Irrigation	$32.0 bn (16.1)	$62.4 bn (10.7)
The figure in brackets are sectoral share of spending  (% of total Plan target)

A committee set up the finance ministry had estimated that $475 billion was needed for capacity addition in the core sector during the 11th Plan period. At this rate, investment in infrastructure is expected to nearly double to 9 per cent of GDP every year during 2007-12.

A massive infrastructure capacity upgrade through the public-private partnership (PPP) model has been one of the key initiatives of the UPA government. This is expected to help meet these ambitious targets.

Also, the private sector's contribution has been targeted to increase to 29 per cent of the total investment, up from 16 per cent during the 10th Plan. In telecom, ports and airports, the government aims to attract around 65 per cent investment from the private sector.

"The 11th Plan target of $498 billion is in line with our expectations. However, how to achieve this target is a big question and the industry is not yet sure about the refinance norms. The government should create an appropriate mindset for PPP projects at the political level and prepare more bankable projects at the state level," said Vinayak Chatterjee, Feedback Ventures.

The Planning Commission had arrived at a much higher investment figure of $585 billion for the 11th Plan. But it assumed that 15 per cent of the projected investment would spill over into the 12th Plan period and lowered the estimate.

The Plan panel also recognises that sustaining these large investments is challenging, especially the $244 billion that is required as debt.

"Such large debt-based investments will involve significant debt service obligations that cannot be serviced out of budgetary subvention. It will, therefore, be essential to bring efficiency improvements in the public sector to economise costs and to ensure rational user charges to improve revenue streams," said an official source.