Indian Growth Constrained by Manpower, Infrastructure (Update2) - By Kartik Goyal
Dec. 12 (Bloomberg) -- India's economic growth, currently the world's fastest after that of China, is constrained by the lack of skilled manpower and inadequate infrastructure, Prime Minister Manmohan Singh said in New Delhi today.
The South Asian nation, targeting 10 percent growth by the end of its 2007-12 five-year plan, expects to sustain the growth momentum in the medium term, he said at the opening of a summit on telecommunications.
India's $906 billion economy has grown at more than 9 percent since April 2005, making it the second-fastest after China among the world's top 15 economies. The government wants to boost growth to increase jobs and eradicate poverty in a country where half the 1.1 billion population live on less than $2 a day, according to the World Bank.
Singh also said a ministerial panel would decide soon on the issue of the availability of spectrum, or radio frequencies that can be used by mobile-phone operators to carry calls.
``I have asked the group of ministers tasked with this to expeditiously conclude its deliberations and suggest a road-map regarding availability and timing,'' he said.
The prime minister said spectrum availability could be a constraint to the growth of telecommunications in India, the world's fastest-growing major mobile-phone market. The telecom ministry has been in talks with the military during the past year for garnering additional spectrum controlled by the defense department.
Freeing Spectrum
``On the supply side, our government has taken steps for the vacation of spectrum by existing users,'' Singh said. ``This is at an advanced stage and the requirement of making spectrum available for commercial uses is being addressed.''
India expects $2 billion of investment in telecommunications infrastructure, said Andimuthu Raja, India's minister for communications and information technology. As much as $20 billion of investment is expected in information technology and telecommunications by 2010, he said.
The country needs to double spending on roads, ports and other infrastructure by 2012 or risk derailing its record economic growth, Montek Singh Ahluwalia, a key policy adviser to the government, said last week.
In the past year, India has tripled its investment target for infrastructure to $500 billion, or 9 percent of gross domestic product, to strengthen stretched public works. Even that estimate is conservative, says the Asian Development Bank.
Investment Needed
The South Asian nation needs as much as $1.6 trillion for infrastructure in the next 10 years, or about 10.5 percent to 12 percent of its GDP, to maintain the current growth, Rajat Nag, managing director general of the ADB, said Dec. 4.
India's electricity shortage reached an eight-year high last year. Highways, which move almost 80 percent of the goods transported in India, account for only about 2 percent of the country's roads. It takes an average 85 hours to unload and reload a ship at India's major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.
Mitsui & Co., Japan's second-largest trading firm, said last month it has been discouraged from investing in India because of the country's poor roads, ports and power situation.
India's unprecedented 9 percent growth has exposed its antiquated transport and power networks, which are ``highly unproductive by world standards,'' according to the Organisation for Economic Co-operation and Development.
China Model
Prime Minister Singh wants to copy the success of neighboring China, which invests about $150 billion on public works each year, three times the amount spent by India. That's helped China attract an average $60 billion of foreign direct investment each year since 2004, more than four times the flows into India, creating more jobs and spurring growth. China's economy expanded 11.5 percent last quarter.
Lehman Brothers Asia Ltd. and other investment banking companies say India must also allow expansion of pension and insurance businesses, which can invest in long gestation projects, to mobilize savings of the nation's 1.1 billion people.
Eighty percent of India's population has no insurance cover and 88 percent of the workforce doesn't contribute to pension plans, Lehman estimates. The pension business is not open to foreign investors and there is a 26 percent limit on overseas investment in local insurance companies.
Companies such as Citigroup Inc., General Electric Co. and Google Inc. are looking to India for engineers, accountants and programmers, although there is a finite pool of talent they can choose from.
While the number of Indian millionaires rose 20.5 percent in 2006, the fastest pace after Singapore's 21.2 percent gain, according to the June 27 World Wealth Report, about 40 percent of adults in India are illiterate. Only 10 percent of Indians in the 18-24 age group are enrolled in higher education, compared with 45 percent in developed countries.
To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
