New Delhi: With a continued focus on infrastructure, the Narendra Modi-led government, in the first budget in its third term, has announced an outlay of Rs 11.11 lakh crore or 3.4 percent of the country’s gross domestic product (GDP) for infrastructure development.
While the capital expenditure remains unchanged from what was announced in February’s interim budget, it is 11 percent higher from the figure of Rs 10 lakh crore that the government had expected to spend on capital expenditure in the previous fiscal year (FY 2023-24). With the highest ever allocation of Rs 11.11 lakh crore, the budgeted capital expenditure is about 17 percent more compared to the actual expenditure of Rs 9.48 lakh crore last year, according to budget documents.
During her speech in the Parliament, Finance Minister Nirmala Sitharaman said that the significant investment the central government has made over the years towards building and improving infrastructure has had a strong multiplier effect on the economy.
“We will endeavour to maintain strong fiscal support for infrastructure over the next 5 years, in conjunction with imperatives of other priorities and fiscal consolidation. This year, I have provided Rs 11,11,111 crore for capital expenditure. This would be 3.4 percent of our GDP,” she said.
While the industry had pitched for an increase in capital expenditure, Ranen Banerjee, partner and leader-economic advisory at PwC India, said that the government has gone with realistic projections on its revenue and expenditure estimates and refrained from announcing overly populist measures.
“The majority of the allocations, including the capex allocation, are as outlined in the interim budget, thus providing continuity. The capex being kept at INR 11.11 trillion was expected, given that the ability to consume this allocation is limited due to disruption from the elections in the first quarter and the second quarter being typically slowed down by the monsoons,” Banerjee said.
Nearly 50 percent of the capital expenditure has been budgeted for the Ministry of Road Transport and Highways (Rs 2.52 lakh crore) and Minister of Railways (Rs 2.72 lakh crore) for the ongoing year. For the Ministry of Housing and Urban Affairs, the Centre has allocated Rs 28,628.26 crore.
The finance minister also announced that the investment in infrastructure by the private sector will be promoted through viability gap funding and enabling policies and regulations. A market-based financing framework will be brought out, she said.
Sitharaman further added that to encourage states to provide support of similar scale for infrastructure, a provision of Rs 1.5 lakh crore for long-term interest-free loans has been made this year. This will aid the states in resource allocation for infrastructure development.
Under infrastructure, which is among the nine priority areas identified by the government in the budget, Sitharaman announced that the fourth phase of the Pradhan Mantri Gram Sadak Yojana (PMGSY) will be launched to provide all-weather connectivity to 25,000 rural habitations, which have become eligible in view of the increase in population.
Plans to support states, such as Bihar, Assam, Himachal Pradesh, Uttarakhand and Sikkim in terms of flood mitigation measures were also announced.
For Bihar, whose Chief Minister Nitish Kumar is a key ally of the Bharatiya Janata Party, the Centre has allocated Rs 11,500 crore for flood control and irrigation-related projects.
“Bihar has frequently suffered from floods, many of them originating outside the country. Plans to build flood control structures in Nepal are yet to progress. Our government, through the Accelerated Irrigation Benefit Programme and other sources, will provide financial support for projects with estimated cost of Rs 11,500 crore, such as the Kosi-Mechi intra-state link, and 20 other ongoing and new schemes including barrages, river pollution abatement and irrigation projects,” the finance minister said.
“Survey and investigation of Kosi-related flood mitigation and irrigation projects will be undertaken,” she added.
She also announced assistance to Assam for flood management and related projects, and Himachal Pradesh for reconstruction and rehabilitation through multilateral development support, besides Uttarakhand and Sikkim.
Arti Roy, associate director at CareEdge Ratings, said, “The FY25 budget underscores the Government of India’s sustained emphasis on capital investments, maintaining the capital expenditure at Rs 11,11,111 crore, which represents 3.4 percent of the GDP, consistent with the interim budget. This strategic allocation is expected to drive infrastructure development, thereby supporting the demand for commercial vehicles, which is currently facing challenges and likely to de-grow by 3-6 percent in this fiscal year.”
In a budget preview, Aditi Raman, associate economist at Moody’s Analytics, had noted that India is slated to have one of the strongest-growing economies in the Asia-Pacific region in 2024 and 2025. “This is primarily due to government spending, rather than domestic consumption or exports, which are important drivers elsewhere in the region,” she had said.
Raman had added that for a few years now, capital expenditure has played an increasingly important role in powering the economy, chiefly through infrastructure investments.
(Edited by Mannat Chugh)
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