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Indian economic recovery likely linked to infra investment, India

0611 - 2020

The path of India’s economic recovery is likely to be dependent on how the country manages its infrastructure investment, according to Care Ratings, which recently said fresh investments worth nearly ₹500 lakh crores are required between 2021 and 2027 to achieve the goal of making the country a $5-trillion economy, as envisaged by Prime Minister Narendra Modi.

Indian economic recovery likely linked to infra investment, India

If the economy grows at an annual average of 11.6 per cent during the next six years, the country’s gross domestic product (GDP) could reach $5 trillion by 2026-27, the rating agency said.

While a part of this investment would be borne by the central and state governments combined, the main enabler will be the financial sector like banks, debt capital markets and foreign capital, the report highlighted.

Care Ratings now expects India to register a contraction of 8 per cent in the current year.

However, the quantum of investment is likely to remain highly dependent on the ability of the financial system to generate resources.

In recent years, Indian banks are struggling with the stressed assets and higher provisioning amount kept aside to compensate for the loss. The phenomenon has reduced the capital base of banks, harming their ability to lend, it said.

Adding to the woes, it is also difficult for the banks to make the large investment required for infrastructure creation as the duration of such borrowings are long. Therefore, markets are required to play an important role here, Care Ratings said.

Meanwhile, the uncertainty over the control of the pandemic and the prospects of economic recovery poses a challenge for economic aspirations. However, infrastructure building may give the much-needed multiplier effect as it would generate employment and demand across sectors, improve the ease of doing business, improve competitiveness, and raise the quality of life, it added.

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