PensionIndia

India will miss its infrastructure investment target for the five years through March 2012 even as it aims to double such investments over the next five years to accelerate annual economic growth to 9%, top policy makers said Monday.

Asia's third-largest economy, speckled with pot-holed roads and clogged ports, aimed to spend $500 billion during 2007-2012, relying heavily on private funding to build power plants and roads. Economists say India's creaky infrastructure shaves two percentage points off annual gross domestic product.

Fixing the shabby infrastructure is crucial to lifting India's growth to 9%--the target set by the government for the next five-year plan through March 2017. The economy is expected to expand 8.2% this fiscal year.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, the government's top think tank, said at a conference that infrastructure investments will fall a tad short of the current target, when the government had hoped for private funds to make up 30% of total investments.

Currently, infrastructure investments in India are funded mostly out of local savings that hover around 35% of gross domestic product.

Mr. Ahluwalia said that private funding has to make up half of the infrastructure investments in the five years to 2017.

The world's second-fastest-growing major economy has struggled to attract long-term capital, key to infrastructure project financing, as bureaucratic red-tapism, a shallow bond market and faulty project designs have thwarted overseas investors from committing money that won't promise returns in a decade. But that hasn't stopped India from setting another ambitious aim of $1 trillion investment in the five years to 2017.

"It goes without saying that it seems a very challenging task, but I am convinced that our economy has the resilience to live up to [the] challenges that lie ahead," Prime Minister Manmohan Singh said at the conference.

Indian pension and insurance companies can't directly invest in infrastructure projects under current regulations, limiting crucial funding. In the current five-year plan, such funds are likely to contribute less than 7% to the total investment in projects.

Insurance and pension funds elsewhere are key buyers of long-term infrastructure bonds.

To overcome the fund crunch, the government has proposed to set up a $11 billion fund to help finance infrastructure projects.

"We have also constituted a high-level committee to suggest measures necessary for financing our ambitious program in infrastructure development," Mr. Singh said.

Source : WSJ