India to raise spending on infrastructure

NEW DELHI (Reuters) - India is considering ways of increasing investment in infrastructure after the global financial crisis choked inflows in mega projects, a senior official said on Wednesday.

Planning Commission deputy chairman Montek Singh Ahluwalia said the government would draw up an estimate for additional spending on infrastructure projects within the next 10 days.

India needs $500 billion investment to upgrade its creaky infrastructure in the five-year period ending March 2012, to sustain a 9 percent average annual growth in the economy.

But the cash-strapped government is now finding it difficult to speed up work on mega projects as inflows from private and foreign sources started drying up after the global credit crisis.

"In the plan, we have said we need $500 billion or so out of which $350 billion we will be getting anyway. Even in normal circumstances, there was a gap of funding," Ahluwalia told reporters.

"This year, because of credit squeeze resulting from global downturn, the gap is much larger."

"Since recessionary trend in the global economy will continue into the next year 2009/10, it is very important that we plan now so that next year we are ready for a major thrust on infrastructure," Ahluwalia said.

On Tuesday, the finance minister said the government was looking into the problems of export and infrastructure sectors, and a 1.06 trillion rupees extra spending plan would provide the stimulus to Asia's third largest economy.

The Reserve Bank of India expects economic growth of 7.5-8 percent in the 2008/09 fiscal year, slower than 9 percent last year.

Ahluwalia said the inflation rate was coming down and companies might lower prices of their products after a fall in demand.

"I do not expect prices to be a problem in the six months or so. Inflation rate has already come down, it will come down further," he said.

India's wholesale price index rose 8.98 percent in the 12 months to Nov. 1, sharply below the previous week's annual rise of 10.72 percent.