The Planning Commission has projected foreign direct investment (FDI) inflows equal to 1.5 per cent of gross domestic product (GDP) in the final draft of the ninth five-year plan. The FDI inflows projected amount to Rs 15,000 crore.
The plan panel has, however, been unable to distinctly estimate the extent of inflows to the infrastructure sector. It is also worried that larger inflows to the manufacturing and financial sectors will exert additional pressures on existing infrastructure and push up the cost of maintaining these assets.
The ninth plan draft estimates that private sector investments will equal public investments in infrastructure. However, a substantial part of public funds will flow into Railways and road works, which are largely controlled by the public sector.
We expect the private sector to bear 60-65 per cent of the anticipated investments in sectors like telecom, power and ports which have been thrown open, a plan panel expert said.
There has been a slowdown in investment by multilateral agencies in the public telecommunication sector, which is why the plan panel expects the private sector to bring in more investment.
The plan panel has been holding a series of consultations with different infrastructure ministries like power, telecommunications, surface transport and ports to estimate the likely flow of foreign investments in these sectors.
The ministries have not been able to state the figure they expect in terms of foreign investments as it is related to a host of other issues like pending policy changes, political uncertainties holding up issues like user charges, the economic crisis in South-East Asia and exchange rate fluctuations.
The ninth plan draft has recommended that utility agencies in the public sector should achieve at least a 10 per cent rate of return on investments and loans.
This would be necessary if fund requirements for the maintenance of existing assets are to be met. The only way out, it says, is enhancing user charges on power and irrigation facilities.
The key lies in attracting more FDI in infrastructure and less in manufacturing sector. Larger doses of investments in the manufacturing sector will put severe pressure on funds needed for the maintenance of existing infrastructure which is already inadequate, the plan panel expert said.
