P. Chidambaram with railway minister Lalu Prasad in New Delhi on Monday. Picture by Ramakant Kushwaha

New Delhi, Feb. 5: The government expects the higher credit rating assigned to India by Standard and Poor’s to boost foreign direct investment (FDI) inflows. It sees FDI touching $12 billion by the end of this fiscal.

“The rating upgrade will attract more investors to India,” finance minister P. Chidambaram said.

Last month, Standard & Poor’s raised the country’s credit rating to investment grade, citing India’s strong economic outlook, its rising foreign exchange reserves and the improved regulation of its stock and bond markets.

FDI inflows between April and November grew by 117 per cent at $7.3 billion compared with $3.5 billion in the year-ago period. If it touches $12 billion, it would mean a growth of 120 per cent for the year.

However, this would still be a fraction of the $320 billion needed by 2012 to modernise the country’s transportation and power networks to accelerate growth and cut poverty.

“India needs more investments in roads, ports and other infrastructure to sustain the economic growth of 9 per cent,” Chidambaram said at an international conference on infrastructure.

Better infrastructure in China, which began opening up its economy in 1978, 13 years before India, helped it attract over $60 billion of FDI in 2006, compared with India’s $50 billion since 1991, industry analysts said.

The government plans to increase total infrastructure spending to 8 per cent of GDP over the next five years. This will involve some increase in government spending, but the bulk would be financed by public-private partnerships, said Chidambaram.

He also said the government’s move to allow 100 per cent FDI in most infrastructure segments has created “attractive opportunity to invest in various sectors”.

Chidambaram feels the public-private partnership model is the only lasting solution to improve the country’s ailing infrastructure, which is the main deterrent for growth.

Railways cell

A public-private partnership cell will be set up in the railway ministry to woo investments for development and modernisation of rail transport.

"To attract private investment through public-private partnerships, we have decided to set up a cell headed by the Railway Board chairman to attract private participation," railway minister Lalu Prasad said.