Infrastructure deficit can India’s derail growth: Rangarajan

June 26th, 2008 - 1:22 pm ICT by IANS  

A file-photo of Manmohan Singh

By Fakir Balaji
Bangalore, June 26 (IANS) Sluggish infrastructure development could derail India’s growth rate and pose serious challenges to development, says C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council. “In the current scenario, infrastructure deficit is posing a serious challenge to maintaining a GDP (gross domestic product) growth rate of 8-9 percent,” Rangarajan told IANS in an exclusive interview.

“Core sector growth has declined to 3.6 percent this April from 5.9 percent in the same month last fiscal. In the long run, such a constraint will hinder the growth rate,” he said.

Even as the United Progressive Alliance (UPA) government grapples with soaring inflation, rising crude oil price and widening trade deficit, an average infrastructure growth rate of 3-4 percent portends a serious challenge to achieve the various targets set under the 11th five-year plan.

Prime Minister Manmohan Singh had earlier said India’s growing infrastructure needs require a whopping $450 billion to sustain an annual GDP growth rate of nine percent.

Rangarajan, who once headed the country’s central bank, the Reserve Bank of India (RBI), said the slow pace of infrastructure growth is “inversely proportionate” to the economic growth rate over the last three-four years.

“It is a cause for concern,” he said. “If we are to sustain the present growth rate and accelerate it to higher levels, we have to not only invest heavily in infrastructure projects through public-private partnerships but also ensure their timely execution.”

For instance, he said, lack of infrastructure to transport farm produce to markets is leading to poor returns to farmers and a lot of wastage.

“To mobilise resources for building quality infrastructure, we need to have legal, regulatory and administrative frameworks to attract domestic and foreign investment on a large scale,” he said.

Similarly, Rangarajan said, issues related to pricing and cost recovery need to be addressed. “Efficient and speedy implementation of projects is critical in the infrastructure area.”

A slew of economic reforms, including privatisation and liberalisation, have unleashed an unprecedented growth and attracted investments in the core sector from domestic and overseas firms. Yet, time and cost overruns, poor execution and bureaucratic hurdles have put a severe pressure on existing infrastructure, especially in urban areas.

“As a result, our infrastructure facilities and urban amenities are groaning as they are stretched out,” Rangarajan said.

Besides physical infrastructure, another major challenge faced by the country is social infrastructure, especially in primary education and basic health where investment has not been commensurate with the requirements.

“We need to invest equally in social infrastructure. The spending in health and education should be efficient as they are a function determining the quality of expenditure than quantum,” he said.

On the crisis in the farm sector, the economic advisor said food production, especially cereals, had to keep pace with the increase in population and income levels.

“The way out is to modernise and diversify the farm sector by improving the forward and backward linkages,” he said.

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