Other development objectives may also be negatively affected. The "Make in India" project is one of them. The goal of establishing India as the global manufacturing hub may be impossible to achieve without a fast and significant progress in building and upgrading transportation, energy, public health and sanitation facilities.
Modi goes to China
What is India doing about all that? This year's budget includes plans for five large power projects to ease energy problems, and infrastructure spending is being increased by more than $11 billion. Difficulties created by inadequate sanitation facilities – estimated to cost more than 6 percent of the gross domestic product -- are also being addressed. The official objective is to achieve "total sanitation" by 2019.
It is quite likely that additional funding of major energy and transportation projects will come from the Asian Infrastructure Investment Bank (AIIB). That will probably be more acceptable than official foreign financing of roads, railroads, power plants and water supplies.
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Such an impression is clearly conveyed by Indian media reports about Prime Minister Narendra Modi's forthcoming visit to China on May 14-16, 2015. These reports indicate that unresolved border issues and India's estimated $40 billion trade deficit with China will be the main items on the summit's agenda. Nothing is transpiring with regard to the $20 billion that China's President Xi Jinping promised during his visit to India last September for investments in Indian infrastructure over the following five years.
I believe, however, that infrastructure investments cannot be ruled out because it is impossible to meaningfully narrow the two country's trade imbalance without direct (as opposed to portfolio) capital inflows from China -- even if a major progress is achieved with Beijing on market access for Indian products and services. In that context, some agreements on China's financial involvement in Indian infrastructure projects are very likely during Mr. Modi's visit to Beijing and Shanghai.
It may also be that this sensitive topic is being handled discreetly in the wake of a $46 billion Chinese-Pakistani deal agreed in Islamabad on April 20, 2015 to build roads, railroads and energy pipelines. Most of these infrastructure projects are part of the China-Pakistan Economic Corridor, binding together the two countries' transportation networks and offering China an efficient shortcut to its Persian Gulf energy supplies through the Balochistan's port of Gwadar.
Asia's cranes are cranking up
Apart from that, the investment package includes a number of other important building programs in Pakistan. A 1,240 km six-lane Karachi-Lahore highway is expected to be completed in 2017, and a modernization of the 1,300 km Karakoram highway, running from Kashgar on the Silk Road to the center of Punjab, Pakistan's largest province. The agreement also provides funds for upgrades of the public transportation systems in Pakistan's major urban centers, and for the construction of an energy grid over the next two years that will combine coal, solar and hydroelectric power.
Indonesia -- South-East Asia's largest economy and the world's fourth-most populous nation -- is the latest regional player to announce last week a $50 billion program of development (mainly infrastructure) financing in order to keep the economy close to its 7 percent growth target.
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This sprawling archipelago of more than 18,000 islands has a $6 billion project to build and upgrade the country's ports. Whether that will make Indonesia a "maritime bridge" between Asia and Africa, as President Widodo pledged at the60th anniversary of the Bandung Conference on April 22, 2015, does not matter much. That was a good political statement to fit the occasion of the two continents' summit meeting -- but there is no doubt that such a huge improvement in Indonesia's transport efficiency will have enormously positive growth effects.
China's vast urbanization program and large-scale infrastructure investments in India, Indonesia and Pakistan are currently the most important growth-enhancing policy actions in Asia.
But that's not all. A number of smaller Asian economies are also making big efforts to build and upgrade their transportation, energy and public health facilities in order to provide jobs and incomes and to raise their growth potential. Many of these countries will benefit from China-sponsored "silk road" projects planned to connect East Asia to Central Asia, Middle East and Europe via land and sea routes. And then their modernization efforts will receive support from AIIB and The New Development Bank. These two lending institutions will mainly focus on Asia, where annual infrastructure needs are estimated by the Asian Development Bank at a whopping $800 billion.
Infrastructure investments are development foundations for (a) stronger economic activity and (b) an increasing growth potential for demand, output and employment.
These are eminently bankable investment propositions offered by the world's largest and most populous continent that is home to two-thirds of humanity.
Asia's development efforts, easily financed by its prodigious excess savings, should give some perspective to investors looking beyond "high frequency" noise and transitory interest rate realignments.