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India's Third Giant Leap

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Is India ready to race ahead of China?
Tue, 2 Jun Pre-Open

The Indian economy grew by 7.5% in the March 2015 quarter and surpassed China's growth rate. However, the economic outlook is still marred with skepticism. This is because economists are of the view that the new way of calculating the GDP growth may be partly responsible for the exuberance. Even the infrastructure development in the country remains woefully low to sustain high economic growth in the long run. Therefore, Prime Minister Narendra Modi is keeping no stone unturned to boost infrastructure development in the country. Not only has his government doubled the budgetary spends on roads and bridges but even the rail budget has been raised by 33% for FY16.

Apart from this, the government has expedited the clearance of projects that were long stuck due to bureaucratic/legal issues or lack of private participation. In order to attract private sector funds of around US$ 30 bn, the government has invested US$ 3 bn of seed capital into a new infrastructure fund. A bailout package of US$ 470 m has been provided to private developers to complete 16 highways. In order to simplify rules for the private sector, financially distressed companies now have an exit option from projects. Through these measures, the government wants to accelerate road building from 12 km a day to 30 km a day as it plans to award 10,000 km of road projects in FY16.

The government's steps to boost infrastructure will go a long way in sustaining strong economic growth in future. As per India's Chief Economic Advisor (CEA) Arvind Subramanian, infrastructure development can add a percentage point to the country's economic growth in FY16. Therefore, the true litmus test for India in its race to beat China's growth rate lies in its efforts to build roads, bridges and railways that will act as backbone to propel its growth engine.

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