UPDATE 3-India pledges better infrastructure to fuel growth

(Recasts with details, background)

By Rajkumar Ray

NEW DELHI Jan 8 (Reuters) - Indian Prime Minister Manmohan Singh promised to improve infrastructure, a day after the head of the world's biggest steelmaker Arcelor Mittal blasted the country over delays in getting projects off the ground.

Infrastructure bottlenecks, the result of red-tape, difficulties over land acquisition and lack of funding, have long been a drag on Asia's third-largest economy, knocking an estimated 2 percentage points off its growth.

"I recognise the frustration well-wishers feel when they lament why things don't work faster or why well-formulated plans and policies don't get implemented as well as they should be," Singh told a conference of expatriate Indians.

"It is probably true that we are a slow-moving elephant but it is equally true that with each step forward we leave behind a deep imprint," he said, adding that economic growth could reach 7 percent in the fiscal year ending in March.

Beset by power blackouts, crumbling roads and choked ports, India stacks up poorly against larger neighbour China, whose rampant growth has been helped by Beijing's development of world class infrastructure. Indian businesses large and small, for example, are forced to self-generate power in order to ensure supply.

Speaking a day after his government was criticised by Lakshmi Mittal, chairman of ArcelorMittal, for slow progress on realising projects, Singh pledged that his government would remove constraints.

The prime minister said his coalition government would address bottlenecks in infrastructure, farming and healthcare, which are priorities for the Congress-led government that took power last year.

India has said it needs investment of $500 billion in infrastructure during the five years to 2012 and has recently made a renewed push to develop roads with a target of building 20 kilometres (12 miles) per day.

DEVELOPMENT AND DELAYS

On Thursday, Mittal berated federal and state governments for slow progress on steel projects. Mittal and South Korea's POSCO (005490.KS) have endured delays of more than two years in their efforts to build 37 million tonnes of capacity in eastern India, at a cost of roughly $37 billion.

"We have to blame the whole country for this. We have not experienced this kind of growth and we did not experience this kind of interest in investments in India," Mittal, who lives in London but carries an Indian passport, said in New Delhi.

"The states were not prepared. Neither the central government nor the states were prepared for this kind of interest in the steel industry," Mittal told reporters.

India has struggled to accommodate economic growth of at least 9 percent in the three years through March 2008, as investors complain about poor infrastructure and inefficient bureaucracy.

Infrastructure is a driver to ensuring growth and meeting rising expectations in a democracy where a large share of the 1.2 billion population remains poor. Singh's government has made infrastructure a priority, but progress has been slowed by the global downturn and last summer's drought.

Singh's growth forecast of 7 percent was slightly below previous forecasts by his policymakers. Speaking at the same function later, Finance Minister Pranab Mukherjee was more upbeat and said growth would be around 7.75 percent in the year to March 2010. [ID:nDEL002536]

But Singh said he was optimistic that India, which along with China is helping pull the world out of recession, could return to annual growth rates of 9-10 percent in a few years.

Indian policymakers, including the finance minister, have said they expect the economy to grow around 8 percent this fiscal year, after it slowed to 6.7 percent in 2008/09.

Singh urged Indians living abroad to look at long-term investments in India and help the government to accelerate growth and social development.

"Oversees Indians, however, while being good savers tend to be somewhat conservative investors. Most remittances are placed in bank deposits. Foreign direct investment in India by overseas Indians is low and far short of potential," Singh said.

For Singh's speech click on www.pmindia.nic.in (Additional reporting by Bappa Majumdar and C.J. Kuncheria; Writing by Surojit Gupta; Editing by Tony Munroe & Jan Dahinten)