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In FY08, the Indian economy grew at an estimated 9.0%, falling marginally from previous year’s growth rate of 9.6%. While the manufacturing sector grew at 8.8% — in the previous year it grew by 12.0% — the services sector registered double-digit growth (10.8%) for the third consecutive year. Last year, however, the services sector grew at a higher rate of 11.1% than this year.

India’s infrastructure sector grew at an average of 6.4% per annum during the five year period FY03-FY08. Growth in the infrastructure sector fell from 9.2% in FY07 to 5.6% in FY08 due to sluggish growth in sub-sectors such as crude petroleum (0.3%), petroleum refinery products (6.5%), and finished steel (5.1%). However, sub-sectors like coal have registered a growth of 6.0%, as compared with 5.9% in the previous year.

Infrastructure is an engine of growth for any economy and can be defined as the basic facilities, services, and installations that are needed for a community to function. Infrastructure includes roads, railways, telecommunication, power, civil aviation, urban infrastructure, and others. Global perceptions about Indian infrastructure are reflected in the way it is rated vis-a-vis other developing countries such as Brazil and China, which clearly indicates that it has a long way to go (Please refer to the table below for ratings). India emphasises on service sector development while China emphasises on lower-value, higher-volume exports through massive expansion. Due to this, China has become the manufacturing centre of the world and the Chinese government has had to invest more money to build roads, ports and power stations — areas where India lags far behind. As per the areawise density, India standas better than China, Indonesia, Cambodia and Vietnam except China.

In FY08, India spent around 5.98% of its GDP on infrastructure. The Indian government plans to intensify its spending on infrastructure to around 9.3% of GDP by the end of the Eleventh 5-year plan period. However, providing basic infrastructure facilities to its citizens is a daunting task in itself.

Speaking about the infrastructure bottlenecks, according to Drewry Shipping Consultants, a London-based agency, cargo handling costs at Indian ports are almost double the global average. Moreover, according to the Finance Ministry, as India produces about 8.0% less electricity than it needs, the GDP is cut down by one-tenth. In fact, financial inadequacies in infrastructure cost India around 1.5–2.0% of GDP growth every year. As compared to other developing countries like Malaysia, Thailand and China, India has struggled to keep its focus on the sector.

Furthermore, private investment in infrastructure in India has been low; during the last decade, private infrastructure investments in India were as low as 2.0% of GDP, as compared with Chile’s 3-4% (average), Brazil’s 1.5% (average) and Colombia’s 2.0-3.0%.

Infrastructure Development – The Road Ahead

Going forward, the quality and efficiency of infrastructure services will play a pivotal role in India’s efforts to achieve the 9% GDP growth target set for the Eleventh 5-year plan. The government has envisaged an investment of Rs 20,561.5 billion (US$ 514.04 billion) in the sector during this period, which will be achieved through a combination of public investment, publicprivate- partnerships (PPPs), and exclusive private investments. The private sector is expected to contribute around 30.1% of this total projected investment. Furthermore, the government has also taken initiatives to catalyse greater private financing of infrastructure through a proposed viability gap fund (VGF) and a special purpose vehicle (SPV). According to the estimates of the Committee on Infrastructure, by 2012, investment requirements in some key sectors will be as follows: Rs 3,141.5 billion (US$ 78.54 billion) for roads and bridges; Rs 309.7 billion (US$ 7.74 billion) for airports; Rs 880 billion (US$ 22.0 billion) for ports; and Rs 2,618 billion (US$ 65.45 billion) for the railways. However, preliminary exercises suggest that investment in infrastructure defined as road, rail, air and water transport, power generation, transmission and distribution telecommunication, water supply, irrigation and storage will need to be increased. Apart from these investments, the government has also proposed to increase its budgetary support to infrastructure.