India’s drive to break an infrastructure investment logjam has come too late to revive the economy before the forthcoming general election – and it could be years before it pays growth dividends for the next government.
Although a cabinet task force set up by Prime Minister Manmohan Singh has fast-tracked approvals for projects worth 5 percent of gross domestic product, severe bottlenecks will limit the scope for his successor to achieve a turnaround.
Figures out on Friday are expected to show that the economy grew by 4.9 percent in the last three months of 2013 from a year earlier, near a decade low, as stubbornly high inflation and increased borrowing costs depress confidence that has yet to recover from the global financial crisis.
Opposition leader Narendra Modi, widely favoured to become the next leader of the world’s most populous nation, has the backing of big business and a strong growth record running his home state of Gujarat.
The election must be held in May at the latest. But economists see no quick fix after the polls that can overcome the malaise and bring a return to the double-digit rates of investment growth that drove India’s boom of the past decade.
“Despite the recent spate of clearances an early revival seems unlikely, given the long gestation period of projects,” says Aditi Nayar, an economist with ratings agency ICRA.
Officials concede that rapid approvals won’t revive investment overnight, but they argue that India’s $1.8 trillion economy could still achieve growth rates of 7 percent if projects are executed on time.
“Delays in projects and critical inputs are hitting economic growth,” C. Rangarajan, chairman of Singh’s Economic Advisory Council, said this week.
The government had set a five-year target of investing $1 trillion in infrastructure by 2017, with half coming from the private sector, in a bid to lift economic growth to 8.4 percent.
The Asian Development Bank, in a report last October, identified a funding gap of more than $100 billion.
The International Monetary Fund attributes India’s slowdown in large part to infrastructure delays. India’s trend growth has declined as a result to 6-7 percent from 8 percent before the crisis, it estimates.