India's Investment in Infrastructure to Boost Economic Growth

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Investment in infrastructure

The Eleventh Plan (2007-08 to 2011-12) aims at a sustainable growth rate of 9 percent with emphasis on a broad-based and inclusive approach that would improve the quality of life and reduce disparities across regions and communities. There is consensus that infrastructure inadequacies would constitute a significant constraint in realizing this development potential. To overcome this constraint, an ambitious programme of infrastructure investment, involving both public and private sector, is being developed for the Eleventh Plan. The programme ensures strengthening and consolidation of recent infrastructure related initiatives, such as the Bharat Nirman for building rural infrastructure, as well as sectoral initiatives, such as the National Highways Development Programme (NHDP), the Airport Financing Plan, and the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal

Mission (JNNURM).

Projections of investment in infrastructure have been made in two ways. First, rough top-down (‘order-of-magnitude’) estimates of investment have been derived from the Government’s GDP growth targets and estimates of the likely evolution of the share of Gross Capital Formation (GCF) in infrastructure as a proportion of Gross Domestic Product (GDP) consistent with those targets. Second, a bottom-up exercise has been undertaken based on a detailed analysis of past trends in combination with strategic and financing plans in the pipeline for various infrastructure sectors.

Projection of GCF based on Growth Targets

India’s GDP is projected to grow annually at an average rate of 9 per cent over the Plan period. Based on investment levels in infrastructure in several cross-country analyses of fast growing Asian economies, GCF in infrastructure may need to be accelerated to around 11 per cent by the terminal year of the Eleventh Plan to achieve the targeted annual growth in GDP of 9 per cent. Realistically, however, starting from a level of less than 5 per cent of GDP observed in 2004-05, such a rapid change in the structure of investments may not be feasible. Moreover, it may not be a necessary condition for achieving a 9 per cent growth since many East Asian countries may have invested more than is essential and while about 10 per cent investment is desirable, India could try to achieve it over a longer period. Taking these factors into account, a top-down target of GCF in infrastructure of around 9 per cent of GDP by the end of the Eleventh Plan seems reasonable. It is assumed that total GCF in infrastructure as a share of GDP increases from 5.

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