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Insurance reform: one key to solving infrastructure problems

Insurance reform: one key to solving infrastructure problems

India needs $1 trillion in infrastructure investment, where there is still a gap of 25-30 per cent that can be filled by U.S. companies, according to the country’s Finance Minister, Pranab Mukherjee speaking at the recent U.S.-India CEOs Summit held in Washington, D.C. Infrastructure (roads, airports, bridges, railways) is often described as India’s Achilles heel, especially in comparison with its fast growing neighbor, China, whose eastern cities have become shining examples of rapid development.

The Indian federal government has been encouraging the country’s financial sector for reforms that will sustain growth, including legislation to increase the foreign investment cap in the insurance sector , from the current 26 percent. Since insurance companies invest so much of their premiums collected into the kind of long-term debt instruments that are used to fund infrastructure projects, their greater participation is seen as a lever to accelerate infrastructure development. Mukherjee said he believed delays passing this legislation have inhibited U.S. infrastructure firms from accessing the necessary insurance protection which has been a key factor inhibiting greater investment. Also, he said, many efforts have been initiated toward direct and indirect tax reformation.

When asked why India was not receiving enough US infrastructure investment, Mukherjee said, basically, that his country needed much more than was presently being funded. He said the additional sectors of road, shipping, communication and transport need long-term estimated infrastructure investment of $250-300 billion.

India’s finance minister reported his country’s economic foundations are firmly sound. He said there is great optimism for medium to long-term investment pointing to the high savings and investment rates that should keep current high-growth momentum active in the foreseeable future. Presently, India experiences a relatively high investment rate – 35 percent of GDP.

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