Infrastructure is key to success of govts: Montek

Infrastructure is key to success of govts: Montek
The Financial Express, June 24, 2009, Page 1

fe Bureau, Mumbai

Infrastructure development will be the key to running successful governments in India, feels Montek Singh Ahluwalia, deputy chairman of the Planning Commission.

Speaking at a conclave of Indian and global top financial experts, Ahluwalia said: “The recent poll results show that governments that are seen to have developed infrastructure have won, which in the long run will support demand.” He was speaking at the fourth Emerging Markets Forum organised by IDFC and supported by the Express group and the Bombay Chamber of Commerce.

The deputy chairman’s statement is the clearest indication so far of the importance the government is expected to place on infrastructure in the Budget, and through the rest of the year.

Ahluwalia assured the bankers that the economy is in good shape and they should not have any fear in financing infrastructure projects on the premise that the economy won’t be able to sustain that. He acknowledged that bank credit is much easier “than it was until 4-5 months ago” but more needed to be done. The line of thought was endorsed by Deepak Parekh, chairman HDFC, who said the Indian banking system was flushed with funds but commercial banks were parking these with the Reserve Bank of India. “The demand for credit is not rising in line with the liquidity, As a result, I think the lending rates are likely to go down further. I expect the rates to go down by at least 50 basis points over next six months.”

As a component of the infrastructure sector, Parekh said, demand for affordable housing (up to Rs 30 lakh per unit) is on a constant rise as property prices have corrected much in this segment. “HDFC's loan disbursement in this segment is improving on a month-over-month basis in the current year.”

Bimal Jalan, former governor of RBI, too, said he was concerned about the spread between the actual lending rates and the repo rate—the price at which they source money from RBI. “This is something the RBI will have to look at closely,” he told FE.

The current repo rate is around 5.5% and the banks are lending at 11% rates. “A huge gap of around 600 basis points,” he asserted.

Ahluwalia also said the Indian economy should show firm signs of revival during the second half of 2009. “Though the economic recovery has already kick started, I think it is reasonable to assume that the worst is over. And now it will get back to the more normal growth.”

The theme of the three-day conclave is the transformational potential of the Indian economy within the next three decades. Harinder Kohli, president & CEO of the Centennial Group, said, “The studies we have carried out have taken experiences of over 150 countries to develop the scenario. India has the potential to grow from contributing 2% of the global GDP to 16% of the GDP by 2039.”

But to do that, Rajiv B Lall MD& CEO of IDFC, said the overriding observation that emerges from the experts is that Indian policy makers need to be proactive and anticipate change better.

Zia Mody, senior partner with leading law firm AZB & Partners, said: “The debate and discussions related to political and governance problems in India will be welcome”.