India may need $1.7 tn for infra financing over 10 yrs

MUMBAI: India may require $1.7- trillion for ten years beginning 2010 to meet infrastructure demand and keep pace with economic growth and urbanisation, Goldman Sachs said today.

The figure is higher than Goldman's previous estimate of $620-billion and the Government's estimate of $500- billion for the Eleventh Five Year Plan (2007-12).

"For the decade between 2010 and 2019, we expect (in today's prices) that India may require $1.7 trillion in the infrastructure sector, especially in roads, power, ports, telecom, water, sanitation and irrigation," Goldman Sachs India, Chief Economist, Tushar Poddar, told reporters here.

Of this, power and roads alone may require upwards of $700 billion.

The country could dominate infrastructure demand in the rest of the emerging world over the coming decade, the investment banking firm said in a paper released here.

India's infrastructure needs will benefit not only local but also global contractors of capital goods, steel, cement and allied sectors. Risks like land acquisition and regulatory issues, however, may hamper the growth, it said.

"Government spending should focus on areas like irrigation, urban infrastructure, water and sanitation where private sector does not want to come in," Poddar said, adding the efficiency of Government spending is very low.

A young workforce leading to rising savings rate, strong balance-sheets and robust GDP growth can potentially fund the country's infrastructure needs domestically, it said.

"India's savings rate could reach 40 per cent in the next few years and can potentially be sustained at high levels for well over a decade," the paper said.

However, India should take a leaf out of last year's financial meltdown and abstain from using funds coming into the stock market, Poddar said.

"The annual pool of financial savings can potentially rise to $800-billion by 2020, which would be about one-and- a-half-times the current stock of credit by the banking system," Goldman Sachs said.

This could have significant implications for the growth of the financial sector, including the growth of banking, insurance and mutual funds, it added.

While India can intermediate household savings through the financial sector to the Government, it also needs to "develop a deep and liquid corporate bond market" to boost spending on infrastructure, the investment bank said.

It also needs to further liberalise pension and insurance funds to mobilise long-term savings. Government's balance-sheet is stretched, with an overall debt at about of 80 per cent of GDP, which raises concerns about the sustainability of its debt, it said.