11 trillion to power India's capex journey

The government has stepped up its capex budget in recent years to improve India’s creaking infrastructure, create jobs, and accelerate growth. (Photo: Bloomberg News)
The government has stepped up its capex budget in recent years to improve India’s creaking infrastructure, create jobs, and accelerate growth. (Photo: Bloomberg News)

Summary

Increased capital expenditure fuels growth in key sectors and fosters Vision 2047 goal as India aims for $5 trillion economy

New Delhi: The Union government has given yet another boost to central capital expenditure by raising the allocation on developing infrastructure projects to 11.11 trillion for the year starting 1 April, building on increases in recent years to spur economic growth.

The government has stepped up its capex budget in recent years to improve India’s creaking infrastructure, create jobs and accelerate economic growth. In the budget presented on Thursday, it set out 11.11 trillion to develop infrastructure in FY25, marking a 11.1% jump from the previous year’s capex of 10 trillion.

The capex had grown by 37% in the current year, with growth rates of 24% in FY23 and 40% in FY22. With another hike, it is expected that government would continue to support the infrastructure growth story while expecting private investment to scale up and help realize ambitious Vision 2047 goals.

Presenting the budget proposals for FY25, finance minister Nirmala Sitharaman said the capex outlay was 3.4% of GDP. The capex is almost 3.3 times that in FY20.

“The 11.1% growth may look lower than previous four years but it is coming on the back of a higher base of last year. The Central capex was being provided to also trigger private sector investment and now we are seeing signs of private sector investment coming in," Sitharaman said during a post-budget press conference.

India’s infrastructure sector is set to become the biggest driver for the country that aspires to become a $5 trillion economy soon and a developed nation by 2047.

Mint reported in November that the budget would raise the Centre’s capex again this year and that the money would go into building critical infrastructure.

Higher capex is largely proposed for infrastructure sectors such as roads, shipping and railways. The capital allocation for these ministries has also been scaled up substantially in the budget, allowing them to complete work under the Vision 2027 plan.

The capital allocation for the roads ministry has moved up from 2.58 trillion (budget estimate) to 2.72 trillion in FY25, and for railways from 2.40 trillion to 2.52 trillion.

Capital spending by the government has been on the rise since the pandemic, even as private investment remained tepid.

Although private investment gathered some momentum in the current fiscal, economists recommended doubling down on government capital spending to help steer the economy through any turbulence, including a feared global slowdown in 2024.

“Despite committing to a lower fiscal deficit, the government has allocated a substantial capital expenditure of 11.1 trillion, marking a 50% increase from FY23. The enhancement of port connectivity, coupled with the establishment of dedicated commodity corridors (energy, mineral, and cement corridors), is poised to enhance manufacturing competitiveness. This strategic move aims to fulfill India’s export targets and substantially reduce logistics costs," said Arun Singh, global chief economist at Dun & Bradstreet.

For the railways, the capex will go into developing three major economic corridors to decongest the network and improve logistics efficiency.

The projects - energy, mineral and cement corridors; port connectivity corridors; and high traffic density corridors -- have been identified under the PM Gati Shakti for enabling multi-modal connectivity.

The railways would also convert 40,000 normal rail bogies to the Vande Bharat standards to enhance safety, convenience and comfort of passengers. Sitharaman said that passenger safety and comfort was paramount as government goes on its path to develop infrastructure and make India a `Vikshit Bharat’.

India will spend 143 trillion on infrastructure between fiscals 2024 and 2030, more than twice the 67 trillion spent in the past seven financial years from 2017, according to Infrastructure Year Book 2023 released by ratings agency Crisil. Most of this investment is likely in sectors such as roads and power, while investment in nascent ones such as EVs, solar, wind, and hydrogen will pick up pace.

In 2023, infrastructure growth sped up after two years of relatively slower progress, particularly in the highways sector. The budget has given enough push to maintain this momentum by proposing building the highest ever km of highways in FY25.

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