India has to tread a long way to match China in infrastructure

India lags way behind China in infrastructure. For example, India’s power generation capacity stands at 1,28,000 mw compared to China’s 5,00,000 mw. Its per capita power consumption stands at a lowly 606 units, while China’s above 1,600 units. China has more than 30,000 km of expressways, while India has only 200 km. Over the next five years, China is likely to invest over $1 trillion in infrastructure.

What is the quantum of investment expected in India?

The approach paper for the 11th Plan has proposed an investment of $320 billion (Rs 12 lakh crore) in the next five years in infrastructure. Investment in infrastructure will have to increase from under 5 per cent of GDP to over 7 per cent.

Which sectors have performed well in recent years?

The number of telephone subscribers is growing fast. In August 2006 it stood at more than 165 million. On an average, 5 million subscribers were being added each month during 2006.

But the power sector appears to be a laggard.

There has been some progress. Losses have declined in the last five years. However, there are still massive shortages. Transmission and distribution (T&D) networks are under-developed, and there is also a dearth of efficient management. Generation targets are not being met. Against a target of 41,000 mw, only 21,000 mw capacity was added during the 10th Plan. The power shortage is about 7 to 8 per cent on an average, and 12 to 13 per cent on peak requirement basis. An additional 90,000 mw of capacity needs to be added over the next five years to meet both current shortfall and additional demand.

Coming to real estate, by when are we likely to see real estate mutual funds (REMF) operating?

So far Sebi has issued guidelines for mutual funds and venture capitalist firms that wish to invest in the share capital of companies engaged in real estate. REMFs invest directly in property, and pass on the lease rentals and capital gains to investors. Those guidelines will have to be issued first. Also, REMFs will have to be granted the pass-through tax benefits along the lines granted to mutual funds.

What is the impact of high interest rates on home loans?

Demand for housing is more directly correlated to rise in personal disposable income. In the long run, a rise in interest rates may not necessarily mean a decline in housing demand. However, currently the demand for home loans is sliding with soaring interest rates and the ongoing correction in property prices. The home loan industry’s growth is likely to slow down to 18 per cent in the current fiscal.

Can home loan borrowers expect relief in the near future through a downturn in interest rates?

The rate of inflation has come down to below 5 per cent. Call money rates are at around 2-3 per cent and liquidity is robust. Yes, interest rates are likely to remain stable or decline in the medium term.