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India projects up to 30% funding gap in infra investment

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Lalit K JhaPTI Washington
I / Washington June 22, 2010, 13:55 IST

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

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

"With a potential funding gap of 25-30 per cent, 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.

 

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

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

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 and inflationary pressure to ease from mid-July. Headline inflation for May provisionally crossed the double digit level.


Monsoon accounts for 80 per cent of rains India receives and 60 per cent 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, Pranab Mukherjee, said that 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 per cent of GDP, second only to China's over 40 per cent.

 

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First Published: Jun 22 2010 | 1:55 PM IST

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