Plan to double infra spending to 9% of GDP | business | Hindustan Times
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Plan to double infra spending to 9% of GDP

The government is planning a raft of new measures to pitchfork investment in infrastructure to about 9 per cent of GDP over the next five years, double the current level of 4.5 per cent.

business Updated: Jun 05, 2009 21:09 IST

The government is planning a raft of new measures to pitchfork investment in infrastructure to about 9 per cent of gross domestic product (GDP) over the next five years – double the current level of 4.5 per cent.

The measures would include steps to make it attractive for banks to lend to long gestation infrastructure projects, develop a deeper bond market powered with tax breaks and incentivise insurance companies park funds in infrastructure firms by investing in debt instruments.

An estimated investment of $500 billion (Rs 23 lakh crore) is required to upgrade roads, highways, ports and airports in the next five years, about 10 times the current level. A senior government official, who did not wish to be identified, told Hindustan Times that the objective was to hit the 9 per cent figure by 2014.

The increasing hesitation of banks to lend to infrastructure projects have rung alarm bells in the government as several projects could get delayed by several months.

Finance Ministry data show that banks are charging interest rates of more than 15 per cent for infrastructure projects, up about 2 points in the past two years. Banks are also stipulating variable interest rates, even while construction is on, exposing the projects to severe interest rate risks.

“The objective is to ensure that banks lend at a stable rate for infrastructure projects,” said the official.

“There is an urgent need to ensure a stable lending regime for infrastcuture projects at about 12 per cent. The average effective rate of lending is currently at around 14 per cent,” said Vinayak Chatterjee, Chairman, Feedback Ventures, an
infrastructure consulting firm. The government is also planning to put in place an effective monitoring mechanism with stringent penal and regulatory powers to ensure timely execution of projects.