Infrastructure Development in India

Abstract

India is home to 1.21 billion people, which is about 17.4 percent of the global population. However it accounts for only 2.4 percent of the world GDP in US dollar terms and 5.5 percent in purchasing power parity (PPP) terms. Hence there exists a huge potential for catch up. This is evident from the fact that it took 40 long years from 1950-51 for India’s real per capita GDP to double by 1990-91. But 1990-91 was a defining moment in India’s modern economic history as a severe balance of payments (BoP) crisis prompted far-reaching economic reforms, unlocking its potential growth. As a result, in only 15 years, India’s per capita income doubled again by 2006-07. If the current pace of growth is maintained, India’s per capita income could further double by 2017-18 in next five years. While acceleration in India’s recent economic growth is noteworthy, maintaining the pace, no doubt, will be challenging.India’s economy is big and getting bigger. Liberalization of government regulations and a deliberate strategy on the part of the Indian Government to promote infrastructure spells opportunity for impressive economic development in India. Nearly all of the infrastructure sectors present excellent opportunities, with roads and highways, ports and airports, railways and power standing out as particular bright spots. The Indian economy is booming, with rates of Gross Domestic Product (GDP) growth exceeding 8% every year since 2003/04. This ongoing growth is due to rapidly developing services and manufacturing sectors, increasing consumer demand (largely driven by increased spending by India’s middle class) and government commitments to rejuvenate the agricultural sector and improve the economic conditions of India’s rural population. The production of industrial machinery has also been on the rise – and the increasing flow of goods has spurred increases in rail, road and port traffic, necessitating further infrastructure improvements.The Indian Government recognizes this imperative scenario. As per the Eleventh Five Year Plan, more than US$500 billion worth of investment is planned to flow into India’s infrastructure by 2012. Major infrastructure development requires a substantial influx of investment capital. The policies of the Indian Government seek to encourage investments in domestic infrastructure from both local and foreign private capital. The country is already a hot destination for foreign investors. As per the World Investment Report of the UNCTAD, India was rated the second most attractive location (after China) for global FDI in 2007. Reasons to invest in India:a.One of the world’s fastest growing economies – and growth expected to continue at 7-7.5% despite the global downturn b.Few restrictions on foreign direct investment (FDI) for infrastructure projectsc.Tax holidays for developers of most types of infrastructure projects, some of which are of limited duration d.Opening up of the infrastructure sector through PPPsCurrently, India has FDI of about US$21 billion per year, well below the targeted US$30 billion. In order to increase FDI inflows, particularly with a view to catalyzing investment and enhancing infrastructure, the Indian Government has introduced significant policy reforms. For example, it now permits 100% FDI under the automatic route for a broad range of sectors (see Figure 1) – only certain post investment intimation is required. For FDI in a few sectors, a prior approval is required, which takes around 6-8 weeks. As part of policy reforms, the Indian Government is constantly simplifying the approval route process, including setting up several agencies to expedite FDI approval. Further liberalization is expected as the Government continues to emphasize infrastructure investment. Projected spending from FY07-FY12 in selected infrastructure segments:a.Electricity: US$167 billionb.Railways: US$65 billionc.Road and highways: US$92 billiond.Ports: US$22 billione.Airports: US$8 billionTime has come to have a detailed study on the subject and to find its valuable strength and support in building the economy and its proportionate co-operation in redefining the same in the most logical, meaningful and purposeful manner.