Crumbling infrastructure prevents India fulfilling its economic potential; in 2007 Deutsche Bank concluded that GDP could be 2% higher but for infrastructure weakness. Having underinvested for years Delhi has been forced to act, but current economic conditions create difficulty.

Urban population boom

Lifting citizens out of poverty means urban population growth and additional strains on power, sanitation, roads, education etc. Goldman Sachs - long time advocate of Indian infrastructure reform - peg 2050's urban population at 700 million. Delhi must do more than deal with backlog demand; they need to get ahead of the game.

Sustaining current levels of economic growth requires minimum investment of US$ 500 billion - equivalent of 8% GDP versus 2008 levels of 4.6% - by 2012. Current government budget deficit makes going it alone impossible yet significant barriers to entry put off foreign and private sector firms.

Government stimulus, domestic demand

To gain traction, government has announced additional measures to its recent domestic stimulus package. Kamal Nath, India's trade minister, recently said, "We are looking at creating greater domestic demand, creating stimulus in the construction, infrastructure sector and in exports."

Existing package allows state-owned India Infrastructure Finance Company to raise money through tax-free bonds, in an effort to refinance 60% of bank lending to the sector. Once approved, new measures in the form of subordinated debt will help companies gain long-term finance.

Investors becoming more choosy

But times have changed, Arvind Mahajan of KPMG, explains, "Even ill-conceived projects managed to get funding earlier. That's in for a change. Investors will be more selective now". Investors are likely to avoid water and power projects for fear that what is produced is given away by influential state governments to gain favor with local voters.

Adding to the perception of risk among infrastructure investors, global ratings agency Fitch recently concluded, "a fair amount of debt restructuring will take place over the next few years" in their report, Infrastructure Finance in India: Lessons from the Front Line.

Reliance recently announced the launch of its Reliance Infrastructure Fund, a vehicle for the public to invest in companies engaged in infrastructure and infrastructure-related sectors like transport, energy, power and oil, amongst others.

India's infrastructure challenge

Urgency is required. Figures in The Economist remind all that in cases lives are at risk:

• 1,000 Indian children die of diarrhea related sickness each day
• 700 million Indians have no access to a toilet, only 13% of sewerage is treated
• 600 million Indians have no mains electricity and 35% of power is stolen
• Just 8,000 km of India's 3.3 million km of roads are duel carriageway
• Average road speed in Delhi is 10 kph, falling from 27 kph in 1997

Private sector and foreign investment

While a US$ 14 billion loan from World Bank will help, government has to spend big and pass through reforms to attract more private sector and foreign participation to share the funding burden.

Regulatory constraints and bureaucracy needs to be removed, policy needs to be consistent at State level and political sensitivities over user charges for services need to be overcome. Only then will the success stories of Delhi Metro and the Golden Quadrilateral Highway be repeated and lofty targets be met.