Montek Singh Ahluwalia, dpty chairman of Planning Commission

INTERVIEW - RBI liquidity tweaks won't hit infra investment

By Abhijit Neogy and Manoj Kumar
NEW DELHI (Reuters) - Any short-term liquidity adjustments in the Reserve Bank's January monetary policy review would not affect investments in India's infrastructure sector in the medium term, a top policy adviser told Reuters on Friday.

"We should not be overly concerned about short-term adjustments in the liquidity situation," Montek Singh Ahluwalia, deputy chairman of the Planning Commission said.
The Reserve Bank of India (RBI), which reviews its quarterly policy on Jan. 29, is widely expected raise banks' cash reserve ratio, the level of deposits that banks must keep in cash, by 50 basis points.

But analysts are equally divided over when the RBI will start raising policy rates.
Ahluwalia said global slowdown and local regulatory issues had hit infrastructure investments, which would see the country miss its 2007/12 investment target of $500 billion.
India's failure to introduce insurance, pension, banking and bond market reforms over the years have hampered investment growth in the sector, analysts say.

"I think infrastructure needs long-term funding and that is why it's important to develop the bond markets and also reform the pension and the insurance sectors," said N.R. Bhanumurthy, economist at National Institute of Public Finance and Policy, a Delhi-based think tank.
Since December 2008, India has announced stimulus packages equalling about 12 percent of GDP to boost infrastructure and support economic recovery in Asia's third-largest economy.
"The government still aims to achieve investment of 9 percent of gross domestic product in that (infrastructure) sector by 2011/12," Ahluwalia said.

India's $1.2 trillion economy, which is expected to grow by over 7 percent in the financial year ending March, higher than 6.7 percent in 2008/09, is hampered by poor road, ports, railways and airports.

Industry lobbies are pitching for soft monetary stance to continue as the higher borrowing costs would adversely affect their investment plans.

Ahluwalia, who advises the government on key economic issues, said investment in infrastructure was also affected by problems in land acquisitions, regulatory clearances and a slowdown in foreign capital inflows.