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India needs to significantly increase its infrastructure and manufacturing investments to sustain long-term economic growth and move towards its larger economic ambitions, according to Rajkiran Rai G, Managing Director of NaBFID. The country currently invests around INR 20 lakh crore in infrastructure each year, while the requirement could rise to about INR 40 lakh crore annually over the next two decades. Rai said higher manufacturing capital expenditure is also necessary as India works to strengthen its manufacturing base. He also pointed to the growing pool of long-term domestic savings as a potential source of funding for infrastructure and other long-duration assets.
India will need to substantially increase infrastructure and manufacturing investments if it wants to maintain a sustainable growth rate of around 9 per cent, Rajkiran Rai G, Managing Director of NaBFID, said during a panel discussion at the annual FIBAC event in Mumbai.
The country currently invests around INR 20 lakh crore in infrastructure every year. Rai said the requirement could reach about INR 40 lakh crore annually over the next 20 years, with total infrastructure investment needs estimated at around INR 800 lakh crore during the period.
He said infrastructure and manufacturing capital expenditure would both need to increase as India looks to sustain economic growth. According to Rai, the country moved into the services sector at an early stage of its development instead of building manufacturing capacity at the same pace.
The services sector has played an important role in India's economic expansion and has helped the country move closer to the USD 4-trillion economy mark. However, Rai said manufacturing investment now needs to rise substantially alongside infrastructure spending.
He pointed to initiatives such as the Production Linked Incentive (PLI) scheme as measures supporting the manufacturing sector, while noting that manufacturing capital expenditure would remain an important part of the country's next phase of growth.
Rai said India would need to practically double its current infrastructure and manufacturing investments to achieve 9 per cent economic growth in a sustainable manner. He stressed that the required investment cannot be limited to a single year and would have to continue consistently over a long period.
Without sustained investment and growth, achieving the target of building a USD 30-trillion economy would be difficult, he said.
The next challenge, according to Rai, will be finding the funding needed to support the large infrastructure investment requirement. He highlighted India's expanding pool of domestic long-term savings, particularly the funds managed by pension, insurance and provident fund schemes. Their combined assets under management are around INR 125 lakh crore, which is close to half of the deposits held by scheduled banks.
These long-term savings are also growing at a faster pace. Rai said assets managed by pension, insurance and provident fund schemes are increasing by around 15-20 per cent, while scheduled banks are seeing liability growth of around 9 per cent.
This growing pool of domestic savings could increasingly be directed towards infrastructure and other long-duration assets, providing an additional source of funding for projects that require capital over extended periods.
Rai said relying only on traditional bank lending would not be enough to meet India's infrastructure financing requirements. Financial institutions would instead need to increasingly originate projects and distribute the resulting exposure among other investors.
Insurance companies, pension funds and provident funds are expected to play a larger role in financing infrastructure and supporting India's next phase of economic growth. However, Rai said this would also require changes across the financial ecosystem and potentially some regulatory adjustments.
The shift could gradually reduce the dependence of long-term infrastructure projects on bank balance sheets. It would also create greater participation from institutional investors and long-term savings pools in financing infrastructure assets.
Source PTI
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