Reforms here to stay, Montek for higher spending on infrastructure

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New Delhi, Dec 4 (UNI) Faced with the prospects that the Left parties were holding back the reform process, Planning Commission Deputy Chairman Montek Singh Ahluwalia today assured global and Indian CEOs of the irreversibility and sustainability of reforms and argued that the private sector will need to be a major contributor in the development of infrastructure sector.

''The Cabinet has just approved the Eleventh Five Year Plan that envisages an increase in infrastructure spending from five per cent of GDP to nine per cent of GDP. This would imply an investment of about 500 billion dollars over a period of five years of which 150 billion dollars need to come from private sectors,'' Dr Ahluwalia said addressing a session at the India Economic Summit.

Dr Ahluwalia said this level of investment was essential to sustain a nine per cent or more GDP growth.

The Commitee on infrastructure, headed by the Prime Minister, had projected an infrastructure investment to the tune of 350 billion dollars.

The appreciating rupee has changed the calculations and the new estimates are that an investment of 500 billion dollars will be required for the infrastructure sector.

The Planning Commission Deputy Chief said on a 'business-as-usual' approach, private sector investment of 150 billion would be required.

However, if the private sector picks up steam then an investment 300 billion dollars can be expected from private players in five years.

Dr Ahluwalia allayed the fears of the business community that the reform process was on hold, stating that reforms have gone too deep to be reversed.

He said the most preferred mode of developing infrastructure would be the public private partnership (PPP) mode and explained how the concept had undergone changes over a period of time.

In the first stage, a hue and cry was raised about ideological issues. The next stage entailed outlying the areas where private sector investment was to be sought. And now finally a clear framework and policies are in place to propel private sector investment.

''Investment in infrastructure in 2006-07 was five per cent of the GDP, which was inadequate,'' Dr Ahluwalia said.

The economist argued that stepping up infrastructure investment by four percentage points will be a 'difficult task' and would require improvement in governance at the state level.

''Investment into infrastructure now is not exactly a trickle, but a stream,'' Dr Ahluwalia said adding that ''It needs to become a flow. We regard infrastructure as a critical constraint to growth.'' Dr Ahluwalia was of the view that India need not emulate the Chinese model for raising its level of savings and investment.

China saves 55 per cent of its GDP to effect an investment rate of 45 per cent. In India, the saving and investment is of the order of 35 per cent and 30 per cent respectively.

''No doubt we must bridge the gap of eight per cent of investment deficit, but a rate much higher then this was not required,'' Dr Ahluwalia said.

He said there were already voices in China that the consumption rate was not growing fast enough. In India what was required was an improvement in effieciency in the savings and investment rate, which would entail financial sector reforms.

Regarding the transmission and distribution losses in the electricity sector, Dr Ahluwalia said these were coming down and the governments expectation was they would come down from 34 per cent at present to around 15 per cent in the terminal year of the Eleventh Plan.

He said in better off and modern cities T&D losses have fallen steeply and even in backward states in certain cities they were showing a declining trend.

To a question relating to social infrastrcuture, he said the issue was not one of merely hiking spending, but one of improving delivery system and quality.


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