Friday, March 26, 2010

India to double infrastructure spending by 2016/17

Finance minister, Dr. Pranab Mukherjee urged a doubling of infrastructure spending to $1 trillion in the five years to 2016/17. He also said private sector firms would be allowed to sell special bonds to help pay for it.

Recognizing poor infrastructure as a long-standing obstacle to faster development in India with choked roads, ports and inadequate power supplies, Finance Minister Pranab Mukherjee told an industry conference that the enormous funding needs cannot be met by overstretched banks alone and will require new sources of financing.

Private firms will be allowed to issue infrastructure bonds, which would hopefully attract investments from big pension funds and other cash-rich firms, Mukherjee said. Buyers would be able to avail tax breaks.

"We have still not completely succeeded in exploiting the full potential of insurance and pension funds for deployment in infrastructure projects," Mukherjee said. "The availability of equity, both domestic and FDI (foreign direct investment), continue to remain an area of concern."

Red tape and difficulties in acquiring land, along with an underdeveloped domestic bond market and wariness of overseas investors in committing to long-term, big-ticket projects have slowed infrastructure development.

Prime Minister Manmohan Singh told the conference India needed reforms to ensure increased resources for infrastructure and more private sector participation, and that increased infrastructure spending would help boost India's GDP growth into double digits.

India needs $514 billion poured into infrastructure in the five years from 2011/12. The bulk of this investment is seen coming from private sources. Singh also said that infrastructure development would have to include building "social infrastructure" like schools and hospitals, adding to the overall cost.

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