Dec. 4 (Bloomberg) -- India needs to double spending on roads, ports and other infrastructure by 2012 or risk derailing its record economic growth surge, said Montek Singh Ahluwalia, a key policy adviser to the government.

``We regard infrastructure as a critical constraint to growth,'' Ahluwalia, deputy chairman of the state-run Planning Commission, told the World Economic Forum's India summit in New Delhi today. ``Investment into infrastructure now is not exactly a trickle, but a stream. It needs to become a flow.''

In the past year, India has tripled its investment target for infrastructure to $500 billion, or 9 percent of gross domestic product, to strengthen its stretched public works. Even that estimate is conservative, says the Asian Development Bank.

The South Asian nation needs as much as $1.6 trillion for infrastructure in the next 10 years, or about 10.5 percent to 12 percent of its GDP, to maintain the current growth, said Rajat Nag, managing director general of the ADB.

India's $906 billion economy has grown at more than 9 percent since April 2005, making it the second-fastest after China among the world's top 15 economies. Prime Minister Manmohan Singh's government wants to accelerate growth to a 10 percent pace by 2012.

``India needs to invest heavily in infrastructure for that,'' Nag said. ``Infrastructure is the most pressing problem in the economy'' and its deficiency has eroded as much as 2 percentage points from India's growth.

Highways, Ports

India's electricity shortage reached an eight-year high last year. Highways, which move almost 80 percent of the goods transported in India, account for only about 2 percent of the country's roads. It takes an average 85 hours to unload and reload a ship at India's major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.

``Infrastructure is a necessary investment,'' said James Scott, regional operating officer for Asia at Metro Cash & Carry International, an arm of Germany's largest retailer. ``India needs high-speed expressways between cities, from ports to cities, else we won't see the growth we are predicting.''

Mitsui & Co., Japan's second-largest trading firm, said last month it has been discouraged from investing in India because of the country's poor roads, ports and power situation.

India's unprecedented 9 percent growth has exposed its antiquated transport and power networks, which are ``highly unproductive by world standards,'' according to the Organisation for Economic Co-operation and Development.

India, China Growth

``We think that the constraints of infrastructure feeding into growth are a few years away and will start hitting the country somewhere in 2009-10,'' said Sailesh Jha, senior regional economist at Barclays Capital in Singapore. ``But in the interim, we are likely to see 9 percent growth.''

Prime Minister Singh is following the success of neighboring China, which invests about $150 billion on public works each year, three times the amount spent by India. That's helped China to attract an average $60 billion of foreign direct investment each year since 2004, more than four times the flows into India, creating more jobs and spurring growth. China's economy expanded 11.5 percent last quarter.

``China built its infrastructure ahead of its needs. We can't do it,'' Ahluwalia said. ``If we can come close to our investment target, we can set the stage for 9 percent growth.''

The government plans to fund as much as 70 percent of the $500 billion public-works bill.

Raising funds for infrastructure won't be a problem, said Rajiv Lall, chief executive officer at Infrastructure Development Finance Co., an Indian financier of public works.

Adequate Finance

Lall said he expects as many as six Indian electricity generation companies to raise $10 billion through share sales in the next six months. The six companies plan to add 50,000 megawatts of power, Lall said in New Delhi at the India summit.

NTPC Ltd., India's biggest power producer, plans to spend 110 billion rupees ($2.8 billion) in the year ending March 31 to increase production, Chairman T. Sankaralingam said in an interview yesterday.

``One very significant change in debate over the last 18 to 24 months has been that fewer people are talking about finance being a big constraint for infrastructure,'' Lall said. ``There are enough savings in India to deal with resources. The problem is how those savings are intermediated effectively to infrastructure.''

Lehman Brothers Asia Ltd. and other investment banking companies say India must also allow expansion of pension and insurance businesses, which can invest in long gestation projects, to mobilize savings of the nation's 1.1 billion people.

Eighty percent of India's population has no insurance cover and 88 percent of the workforce doesn't contribute to pension plans, Lehman estimates. The pension business is not open to foreign investors and there is a 26 percent limit on overseas investment in local insurance companies.

To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net.

Last Updated: December 4, 2007 05:41 EST