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We need to have a strong and deep bond market: Montek

Speaking in New York on the margins of the India @60 promotional event, Dr Montek Singh Ahluwlia says the private sector's contributions would have to be far higher, reports Arun Kumar.

business Updated: Sep 26, 2007 20:21 IST
Arun Kumar
Arun Kumar
Hindustan Times

The Planning Commission said this week that the country needs to invest $492 billion (about Rs 20,18,709 crore) in the 11th Plan that runs from 2007 to 2012 to sustain 9 per cent economic growth. Given the current mechanism of funding the sector, there is huge gap of around $39 billion, or Rs 1,60,164 crore. The plan panel sees the share of private sector in infrastructure at 30 per cent.

Speaking in New York on the margins of the India @60 promotional event, Dr Montek Singh Ahluwlia, the commission's deputy chairman, said in some sectors, the private sector's contributions would have to be far higher, as for instance in telecoms, ports and airports, where it could be as high as 65 per cent.

Excerpts from the interview:

Won't the enhanced investment in the infrastructure sector during the 11th Plan period create inflationary pressures on economy?
We are looking at 9 per cent growth. The investment in infrastructure will help in achieving inclusive growth which in turn would not be inflationary.

On the contrary, it may help in increasing productivity. Having said I believe that the current inflationary trend is temporary in nature and the situation would improve over the medium to long term.

We have seen a hardening of interest rate in the recent past. Do you not think that a double-digit interest rate may affect the viability of infrastructure projects since they have long gestation periods?

The viability of the projects depends upon many factors and interest rate is one of them. More important is availability of funds. Commercial banks have problem of asset-liability mismatch as they can lend only between three to five years while infrastructure needs long term funds. What we need to have is a strong and deep bond market.

The bond market will get mature once insurance and pension funds start looking for long term maturity instruments. Currently, the Life Insurance Corporation (LIC) primarily invests in government securities. As the (Planning Commission) report states, there is gap of $39 billion. It is important to find out the mechanism to fill that gap.

For 9 per cent GDP growth is it important that investment in infrastructure should also be 9 per cent of the GDP?

It works both ways. If you want high and sustainable growth of 9 per cent, you need to have strong infrastructure. And if you invest in building strong infrastructure for which there is strong demand, then it will automatically push the bar of growth upward. What is important is to provide connectivity to the people through any means. This will help increasing the size of the economy.

When this report will be accepted?

Before finalizing the report, we have discussed with respective administrative ministries and all the figures in the report are based on data collated from these ministries. We want to have a public debate on the issue.

First Published: Sep 26, 2007 20:15 IST