India’s Achilles Heel

Poor infrastructure continues to be an Achilles heel for India—if it were better, analysts say, the country could add 1-2 percentage points to its annual economic growth rate of around 8 percent.

India spends $17 per capita annually on infrastructure and capital investment—by comparison, China spends $116. With millions of people moving to India’s cities each year, McKinsey says the country will have to spend $1.2 trillion on infrastructure just to meet basic needs. This works out to $134 per person, or about eight times current levels.

The Delhi government has a plan to spend $500 billion on infrastructure by 2012 and twice that amount in the subsequent five years. But there’s a big difference between plans and execution—India is scheduled to host the Commonwealth Games in just a few weeks, but many of the venues are still not ready due to corruption and inefficiencies.

Eight miles of new roads are being built each day, but the official target is 12 miles per day. Desperate for more electricity, the Indian government turned to a failed Enron project that had been dormant for a decade.

One reason for lagging infrastructure is a lack of qualified engineers. A New York Times article this week said many of the best and brightest are going into the high-tech sector rather than the less glamorous (and less lucrative) world of roads and bridges.

Despite the challenges, Morgan Stanley analysts think India’s economy could begin growing faster than China’s as early as 2013. MS says this is because India’s ratio of working age population to dependents is improving while China’s is declining. Their government has been successful at creating jobs and the country has a strong footing in the lucrative global services export market.

But for India to overtake China’s growth pace, it’s vital that the country get better at executing on its ambitious infrastructure vision.

About Frank Holmes 264 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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