Growth Target Hinges On Infrastructure Investments

Social sector investments have been factored into the base line scenario, which assumes a 6.2 per cent growth in the gross domestic product (GDP) at about the same level of savings and investment as in the eighth plan.

The expectation of a higher growth of 7 per cent of GDP is based primarily on the assumption of a significant rise in public investments in infrastructure.

The government has been left without much option. It cannot sacrifice investments in infrastructure even if it is difficult to raise the kind of resources sought by the Commission, a finance ministry source said.

The higher growth projection assumes a sharp increase in the rate of domestic savings, investments, exports and imports.

 

The paper has projected an incremental capital output ratio (ICOR) of 4.08 (against 4.34 in the eighth plan) on the expectation of a higher level of efficiency in industry. This, in turn, depends on investments in infrastructure.

The approach paper has also forecast a drop in the current account deficit, indicating the Planning Commissions faith in the nations ability to attract large of foreign investment.

The main difference between the two scenarios is additional investments in infrastructure, which will push up the rate of industrial and export growth, the source said.

Low public investments have been cited as the main reason for the governments failure to meet the physical targets of infrastructure growth in the eighth plan, which ends this year.

The anticipated increase in the national road network is 609 km against a target of 1,760 km.

Power generation capacity is expected to grow by 17,667 megawatt against a target of 21,401 mw.

The addition to the countrys irrigation potential will be 10.6 per cent against the target of 11.3 per cent.

The plan panel has little faith in the private sectors ability to invest in infrastructure and has stressed that the public sector must lead the way to create the right environment.

For instance, investment in the power sector is closely linked to restructuring of state electricity boards