Investing in infra during recession key to growth: World Bank

The recession may trigger curtailment in spending, but increasing investment in public infrastructure during a crisis is the key to growth for emerging economies like India, the World Bank has said.

“In India, the need for infrastructure investment is widely recognised as a critical priority for ensuring more and more inclusive growth and poverty reduction,” World Bank Vice-President Katherine Sierra said in a bank publication.

Infrastructure projects often take years to prepare, but “postponing them has a drastic knock-on effect for medium term growth”, she added.

Terming the cut in public infrastructure spending by many countries during the Asian financial crisis as “a short-sighted solution”, Sierra said the move made emerging from recession all the more difficult.

Many countries today, from the US to Russia to China, plan to accelerate infrastructure spending to respond to the crisis, she pointed out.

In India, inadequate power supply remains a key constraint hampering businesses in many areas.

“With 40 per cent of India’s population expected to live in urban areas by 2021 and expected to create about 65 per cent of the nation’s GDP, it is urgent to ensure that modern water supply, public transportation, sanitation and solid waste management are in place to support this growth,” Sierra said.

Citing estimates of an analysis, she said economic losses incurred on account of congestion and poor roads alone run as high as $6 billion a year in India.

In its Eleventh Five-Year Plan, the government of India has set aggressive targets on infrastructure investment, from its current five per cent of GDP to 9 per cent by 2012.

“This present a formidable challenge, with a sharp slowdown in the availability of financing for new infrastructure projects,” she said.

However, in a major lending operation, the World Bank is providing a $1.2-billion credit to state-run India Infrastructure Finance Company to help it catalyse long-term debt for infrastructure projects built on public-private partnerships.