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Budget may boost core spending
Govt may unveil measures to address pressing need for better physical infrastructure.
The Budget for fiscal year 2005-06 is likely to significantly enhance investments for lifting creaky infrastructure that threatens to derail growth in Asia's fourth-largest economy.
Experts say the Government may unveil a slew of measures in the Budget next week, including use of a portion of the country's swelling foreign exchange reserve, to address the pressing need for better physical infrastructure.
Finance Minister P Chidambaram will present the Budget for 2005-06 to Parliament on Monday.
"The first Budget of any government is always an occasion to make radical changes without bothering too much about political risks," said chief economist of India's leading independent credit rating firm CRISIL Ltd, Subir Gokarn.
"At a time when there is an overall buoyancy in the economy, I think the Budget will usher in radical changes on the infrastructure front with the Government tapping new avenues of funding such projects," Gokarn told IANS.
Experts say the radical changes could include the Government digging into the foreign exchange pile, which is inching towards a staggering $130 billion, for projects like building new roads and improving ports and airports.
Foreign exchange reserves soared to a staggering $129.98 billion in the week ended February 11 on large-scale overseas fund inflows into the domestic market, according to Reserve Bank of India (RBI) data.
Harvard-educated lawyer-turned-politician Chidambaram is also likely to announce a framework for increased flow of overseas as well as domestic private sector funds into the infrastructure sector.
Chidambaram had become the darling of industry during his previous stint in the Finance Ministry from 1996 to 1998 for his reform measures.
"It will be absolutely a prudent move to utilise a portion of the foreign exchange reserves to boost the country's infrastructure," said president of the Mumbai-based Indian Merchants Chamber (IMC), Nanik Rupani.
"Higher economic growth is just not possible without making massive investments in areas like roads, rail, ports, power and water. The focus should be on boosting urban as well as rural infrastructure," he added.
"Rules should also be simplified for increased participation of foreign as well as Indian private sector companies in infrastructure building. This has to be a continuous process for sustainable growth."
Experts say the Indian economy could absorb up to $150 billion of foreign direct investment in the infrastructure sector over the next 10 years.
Although India and China are the two fastest growing economies in the Asian region, the former gets a fraction of the Chinese overseas investments due to its comparatively poor physical infrastructure.
While China spent 20 per cent of its gross domestic product on power, construction, transportation, telecom and real estate just a couple of years ago, India, the world's second most populous country used just six per cent.
Principal adviser to the Confederation of Indian Industry (CII) Arun Patankar says rusty infrastructure has restricted the economic growth of the country of over one billion people to just around six per cent in the last few years.
"With the improvement in infrastructure, the economy will be able to do much better than it is doing now. I feel the infrastructure sector should receive the maximum attention in the Budget," he added.
According to the CII official, inadequate infrastructure puts a massive burden on the operational costs of Indian industrialists and acts as roadblocks in the way of competing with global corporations.
Rupani said the Budget should also announce a fixed timeframe for the completion of all pending infrastructure projects including the ambitious national highway development project covering 6,000 km of roads.
