India’s fairytale growth targets are linked to the speed at which it resurrects its crumbling infrastructure. Now, the funding gaps to put infrastructure on the fast-track, predictably, are enormous. But, the good news is that India’s thrifty households can pitch in to take care of a lion’s share of the financing needs.
According to a Global Economics Paper by Goldman Sachs, India’s infrastructure funding needs over the decade is estimated at $1.7 trillion up from its earlier projection of $620 billion (accounting for current cost estimates). Interestingly, the paper notes that rising household savings (projected to touch 40% by 2016) and healthy balance-sheets mean that India need not take significant recourse to external borrowings.
From the policy perspective, what is needed is the right channelling of these funds to finance infrastructure. And, what should sound like music to investors, the paper says, “India’s overall return on equity has been higher than the region’s over the past several years, suggesting higher returns on capital.”
All the elements appear to be in place for setting the infrastructure right. In fact, India has already seen some success with projects like the Delhi Metro, the National Highway Development Programme and mobile phone penetration that have revolutionised the way people live, move and transact. What is required is sustained strategic focus, a long-term development vision and good governance.