The growth momentum of infrastructure rightly continued in this budget would enable the Indian economy in achieving its full potential.
The growth momentum of infrastructure rightly continued in this budget would enable.The progressive vision of the fiscal budget presented by the recently instituted government has fueled India’s momentum towards becoming a developed nation. Building on its existing strategy for economic growth, the government has once again stressed on the importance of infrastructure as a key priority area for all-round economic development and prosperity.
Over the last decade, India has embarked on an ambitious journey of infrastructure development to reinvigorate the economy. To foster economic growth and development, government has allocated Rs 11.11 lakh cr towards capital expenditure (3.4% of GDP), marking an increase of over 5 times in the last 10 years. Most of the capex surge has been witnessed in the last 5 years, with an annual growth of 27% witnessed between the same period. Government has consistently established its commitment and focus on creation of world-class, good-quality infrastructure assets. This is exemplified through the substantial allocation of overall capital expenditure for Infrastructure focused sectors, with share of Centre’s capex in infrastructure increasing from 28% in FY2014 to ~60% in FY2025. Over the next 5 years also, Government assures continued focus on infrastructure through strong fiscal support, in conjunction with other priorities.
Infrastructure has witnessed significant advancement in last 10 years, with expansion of National Highways (NH) network by 1.6 times, electrification of 94% of the rail network, operationalization of 100 high-speed Vande Bharat trains, modernization of 1,318 railway stations, expansion of metro rail network by ~4 times whilst serving 21 cities, operationalization of 84 Airports and increase in Power generation capacity by 70%. These developments have been accelerated by government’s programmatic interventions such as creation of National Infrastructure Pipeline (NIP) of project worth Rs 111 lakh cr, National Monetization Pipeline (NMP) of projects worth Rs 6 lakh cr and PM GatiShakti National Master Plan. Implementation of sector-focused large-scale national level programmes like Bharatmala, Sagarmala, Regional Connectivity Scheme-UDAN, Dedicated Freight Corridors, High Speed Rail network, Redevelopment of Railway Stations, BharatNet, Jal Jeevan Mission, AMRUT, Smart Cities Mission, etc. have also contributed to fast-tracking development. Phase IV of PMGSY aims to provide connectivity to 25,000 rural habitants.
Even at the sub-national level, State governments have realized the importance of infrastructure to enable faster economic growth and have collectively expanded their capital outlays to Rs 8.7 lakh cr in 2024, marking an increase of 2.5 times since 2015. Additionally, states are being supported by Centre through interest free loans for infrastructure creation. Under the special assistance scheme, provisions of more than Rs 1 lakh cr. have been made in the last two years and this year also Rs 1.5 lakh cr have been allocated to support states in their resource allocation. This year, a significant portion of this allocation shall also be earmarked for faster implementation of next generation reforms in the states. The budget also lays special emphasis on development of economically weaker states like Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh. Infrastructure initiatives across these states will include development of industrial nodes, airports, medical colleges and sports infrastructure. Additionally, road connectivity projects worth Rs 26,000 cr and Power projects worth Rs 21,400 cr have also been proposed in the State of Bihar.
In terms of financing, Infrastructure development in India is largely driven by grants from Central and State government or dependence on borrowing from domestic and international markets including MDBs, which have limited financing capacity or investment preference. However, to sustain the infrastructure growth momentum, government has been encouraging adoption of innovative financing mechanism such as PPPs and other structured financing instruments. To further encourage private sector participation, government through the recent budget aims to promote viability gap funding (VGF) for infrastructure projects and also propose a market-based financing framework for infrastructure. To effectively leverage the strengths of the private sector, project sponsoring authorities (PSA) and States should aim to develop a pipeline of investment-ready, bankable projects which would then make lending to these projects easier.
Capital investment in infrastructure has a significant long-term economic impact on employment generation and job creation. According to NIPFP estimates, every rupee spent on infrastructure results in gain of 2.5 to 3.5 rupees in GDP. Consequently, it can be agreed that infrastructure creation has a significant influence on productivity of other sectors like agriculture, manufacturing, services, and tourism, etc. Government’s announcement on implementing Digital Public Infrastructure (DPI) Applications in other sectors like agriculture, logistics, MSME, education, health and urban governance will have a resultant multiplier effect on the overall economy. The proposed e-commerce export hubs under PPP mode would also help in facilitating trade and export related services for MSMEs. On similar lines, development of “plug and play” industrial parks in or near 100 cities (also notified under HML) would help in organized growth of manufacturing and services sectors.
In addition to delivering on its infrastructure promise, government also aims to enhance India’s energy security in terms of availability, accessibility and affordability, government has planned to formulate policies with respect to energy transition pathways. To diversify India’s overall energy mix, proposed modular nuclear reactors and advanced thermal power plants will encourage partnerships and collaboration with private sector for exchange of technology. Additionally, facilitation of energy audits for traditional micro and small industries would help in improving energy efficiency and contribute towards achievement of India’s climate targets. Wider adoption of Transit Oriented Development (TOD) plans in 14 large cities and Creative Redevelopment through a transformative framework would aid in achieving the climate goals by facilitating reduction in carbon emissions.
Infrastructure development is a long-term phenomenon as it takes a long time for creation of assets and an even longer time to derive its full benefits on the economy. Thus, the growth momentum that has been rightly continued in this budget would enable the Indian economy in achieving its full potential.
A version of this article was published in The Economic Times - Infra.com on 25 July 2024. The same can be read here