India needs foreign capital to fix its infrastructure

India needs foreign capital to fix its infrastructure

Prakash Javadekar, minister of environment, forest and climate change and minister of information and broadcasting in India, was quoted by media reports as saying recently that the Indian government is likely to invest 100 trillion rupees ($1.4 trillion) over the next five years to boost India’s infrastructure.

The news came at a time when India’s GDP growth has tumbled to a six-year low of 5 percent for the April-June quarter. The $1.4 trillion stimulus package is considered a key step in New Delhi’s efforts to make India a $5-trillion economy over the next five years. The Indian economy is currently at $2.8 trillion and will have to grow at around 12 percent annually to reach its goal.

This won’t be an easy task, and the first step is to make its infrastructure plan a reality. India lags behind many other emerging countries in infrastructure. An improvement in infrastructure could enable India to overcome bottlenecks such as power shortages and propel the nation’s industrialization. The infrastructure sector must become a key driver for the Indian economy at a time when economic slowdowns have hit many other industries.

However, there are challenges ahead as India steps up infrastructure investment. First, infrastructure projects have long been criticized for low efficiency due to an inadequate regulatory mechanism and inefficiency in the approval process. Second, land acquisition problems are a major obstacle for building infrastructure facilities in densely populated areas. Third, India has a limited ability to build large-scale infrastructure quickly because of an imperfect industrial chain and modest industrialization.

If India seeks rapid development in its infrastructure sector, it would be effective to introduce more market-oriented competition to the industry to make it a fully competitive market.

This would result in intense competition in the global market for Indian infrastructure projects and help reduce costs. The introduction of international capital would also promote an improvement in India’s investment environment, stepping up pressure on Indian homegrown firms to enhance competitiveness.

For India, it is worth considering how to take advantage of capital from China, Japan and South Korea to make its infrastructure plan a reality. Those countries lead the world in infrastructure investment. They can be used as a positive factor to help India reach its $5-trillion goal.

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