By Vinayak Chatterjee

Since 2014, the National Democratic Alliance government has consistently, and rightly, followed the economic mantra of having large dollops of infrastructure spend by the Centre, pump-priming economic growth with its well-known multiplier effects. Indeed, the strategy worked — including in the stressful Covid period. Across the last few years, India saw Union Budget infra allocations increase every year by 25-30%; and witnessed concomitant GDP growth.

But the first smoke signal of this strategy being reset came from the Interim Budget in February, where the infra allocation was raised by only 11% to Rs 11.1 trillion. Most infrastructure sector analysts dismissed this as merely a holding operation till the new government assumed office, with an expected 30% increase to around Rs 13 trillion in the final Budget.

The next serious signal came from the Economic Survey. It postulated two clear drivers — “bottoms-up growth”, and the private sector rising to fulfil investment and employment aspirations. The silence on “infrastructure-led growth strategy” was ominous.

The final sign of the reset came from the Budget speech, which mentioned that aggressive infrastructure outlay trends of the past were being moderated to achieve fiscal consolidation and accommodate other priority areas. Substantial investments of the past decade were also alluded to.

The same increase of 11% has been announced, taking the figure to Rs 11.1 trillion as against the more ebullient expectation of Rs 13 trillion in the first year of the new government. Moreover, there has been no emphatic mention of highways, ports, airports, waterways et al, which where the hallmarks of previous Budget speeches.

So, if the Centre steps aside somewhat, who else is to share the burden of heavy-lifting for Indian infra? The Budget speech alludes to states increasing their share, multi-lateral development banks revving up their act again, and hopefully the revival of public-private partnership that will draw in the elusive private sector capex.

For ground-level initiatives, the Budget must be lauded for identifying a plethora of practical programmes, notwithstanding the special packages for Bihar and Andhra Pradesh, which clearly pass the test of political expediency. They include urban rejuvenation, plug-and-play industrial parks, energy security, rural housing and roads, land digitisation, tourism infrastructure, irrigation and flood mitigation—all adding up to a clear recognition of areas that need “fixing” to enable a “bottoms-up” strategy to play out. The Rs 2.66 trillion earmarked for rural infra clearly hits the bullseye, as does the special emphasis on all-round development of the eastern region.

However, many of these initiatives will hopefully start showing results in 3-5 years. The moot point is that in this transitional period, central government outlays would still need to be relatively large to keep the GDP clipping at 7-8%. Unfortunately, the relatively lower growth in outlay is likely to significantly diminish the power of this pump-priming engine. This is a significant apprehension emanating out of this year’s Budget.

Striking a different note, one of the key reasons for reducing the increase in infra allocations is fiscal consolidation. It is not necessary under all circumstances to genuflect at the altar of fiscal rectitude. One school of macroeconomists would rightfully argue that a nation like India crying out for job creation, demand generation, and logistics and infra assets could well do with controlled fiscal expansionism, provided it was linked to asset creation and not wasteful expenditure. Thus, there is nothing sacrosanct about dropping the fiscal deficit to 4.9%, if the same at 5.5% could give the additional fiscal space for a higher infra outlay. This would get the extra three-times multiple to turbocharge the economy.

Overall, the FY25 Union Budget does point out to a change in direction of India’s macroeconomic growth path.

The author is the Founder and Managing Partner of The Infravision Foundation.

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