
Infrastructure: Sitharaman will need to juggle conflicting demands in budget

Summary
- Her challenge will be in maintaining infrastructure spending allocation at the current level as the government fights to cut the fiscal deficit.
The government significantly increased infrastructure spending post-covid as the pandemic severely hurt public consumption, while private investments and exports tanked. It has continued that focus. In 2018-19, it spent just ₹3 trillion on infrastructure, or 1.6% of the gross domestic product (GDP). In 2024-25, this has risen to ₹11.11 trillion (3.4% of GDP). It was this spending that powered India's economic growth in recent years as it became the fastest growing large economy in the world. In 2023-24, the GDP growth touched 8.2%.
The government has pledged to keep infrastructure spending at 3.4% of GDP as India needs to overcome infrastructure shortcomings, not just physical (roads, ports and airports) but also social and digital as it aims to become a developed nation by 2047.
The challenge will be in maintaining this allocation as the government fights to cut the fiscal deficit. Experts have argued that it would not be possible for the government to continue with the current level of capital expenditure and still bring down the fiscal deficit to 4.5%, as it has promised.
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Public spending
At the same time, government hopes of public spending kickstarting private investment has not materialized yet. With other engines of growth (private investment, consumption and exports) remaining sluggish, public spending continues to be the only growth propellant. This became clear this fiscal year, as lower government spending due to elections in the first quarter pulled down India's economic growth significantly to 5.4% in the second quarter of 2024-25.
As the finance minister prepares her next budget, her biggest challenge will be whether to increase infrastructure spending or focus on fiscal consolidation. Already, she is under pressure to offer some sops to stimulate consumption. It remains to be seen how she will balance these conflicting demands.