Public infrastructure is a pivotal catalyst for driving inclusive economic growth and achieving various development objectives, including reducing social inequalities, poverty, and health hazards.
Traditionally, infrastructure has been linked to physical assets like roads, bridges, electricity, railways, and airports. However, since 2014, India’s development narrative has been intricately woven with a strong emphasis on physical, social and digital infrastructure. This comprehensive approach aims to connect markets, facilitate production and trade, and create economic opportunities in education, employment, and income.
While social infrastructure, encompassing elements like water and sanitation, irrigation, schools, and hospitals, enhances people’s lives, skills, and health, the digital infrastructure, which involves technologies and networks supporting electronic communication, data storage, and information sharing, plays a crucial role in bolstering economic growth. The synergy between digital infrastructure and economic development is multifaceted, contributing to various facets of modern economies. According to a study by the National Institute of Public Finance and Policy, every rupee invested in infrastructure and capital expenditure results in a 2.95 multiplier effect on the gross domestic product (GDP).
Despite global growth remains subdued due to factors such as low productivity and tight monetary conditions, coupled with escalating tensions in the Middle East leading to potential commodity price shocks, there are risks of further dampening growth. In contrast, India continues to shine as the fastest-growing large economy globally, expecting its real GDP growth to remain robust, projected to be around 7 per cent in the fiscal year 2024-25.
In the last five years, there has been an emphasis on the infrastructure push, and the government has been increasing the size of capex every consecutive year. Since the onset of the COVID-19 pandemic, India’s fiscal policy approach has been to enhance spending on development and welfare initiatives to manage the pandemic.
Simultaneously, there has been a focus on ramping up capital expenditures to stimulate economic recovery. The interim budget 2024-25 also reveals the continuity of the infrastructure push to strengthen the core infrastructure sectors, which are long-term growth-enhancing. It has continued the thrust to the three dimensions of infrastructure development (physical, social, and digital), which, together, accelerate inclusive growth. The total capital expenditure (capex) for the fiscal 2024-25 has been projected to be Rs 11.11 lakh crore, 17 per cent higher than the 2023-24 revised estimates. Further, to strengthen the hands of the States, the scheme for providing financial assistance to the States for capital expenditure has been continued in 2024-25, with a total outlay of Rs 1.3 lakh crore accounting for nearly 0.4 per cent of GDP. This will lead to decentralised infrastructure development in urban, peri-urban, and rural states.
As a percentage of GDP, the capex has been growing from 1.7 per cent in 2014-15 to 3.4 per cent in 2024-25. Regarding sectoral composition, the capex on general services accounts for 17.5 per cent of the total capex, of which defence’s share is about 15.5 per cent and the social sector accounts for only 0.9 per cent. The bulk of the capex is dedicated to the economic sector (65.7 per cent), comprising transport (46.0 per cent), communications (7.6 per cent), energy (1.7 per cent), etc. The share of roads and bridges in total capex is projected to be 23.3 per cent, whereas the same for railways would be 22.7 per cent. These targeted investments will create vital physical infrastructure and improve connectivity that will accelerate the movement of passengers and freight, create jobs, spur private investments, and provide a cushion against global headwinds.
Investing in social infrastructure, encompassing education, skilling, housing, public health, nutrition, and drinking water, can yield a more productive and proficient workforce. Additionally, it contributes to reducing mortality rates, addressing issues like wasting and stunting, promoting social mobility, and elevating overall quality of life. These factors collectively foster a more robust and inclusive economy, fostering holistic development. Several government schemes, such as the Pradhan Mantri Awas Yojana ( Rs 80,671 crore), Jal Jeevan Mission ( Rs 70,163 crore), and the Mahatma Gandhi National Rural Employment Guarantee Program ( Rs 86,000 crore), allocate significant budgetary resources. While classified as revenue expenditure, these funds effectively contribute to capital creation, generating jobs and other economic opportunities. This approach underscores the multifaceted impact of investing in social infrastructure on both individual well-being and broader economic development.
Several initiatives have been introduced, such as funding for offshore wind energy projects, a programme for wind and other renewable energy, a national green hydrogen mission, and the mandatory blending of biogas with Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) as part of the government’s commitment to achieve a “net-zero” economy by 2070. The recent announcement of a rooftop solarisation scheme, allowing households to access free electricity, aligns with the government’s sustained emphasis on increasing the contribution of solar power to India’s energy portfolio. One noteworthy program contributing to these efforts is the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM). The KUSUM program is vital in promoting sustainable energy practices by encouraging farmers to adopt renewable energy solutions, thereby supporting the broader objective of transitioning towards a net-zero economy by 2070.
Over the years, the investment in digital infrastructure has significantly narrowed the digital divide in India. Commencing with the introduction of JAM (Jan-Dhan-Aadhaar) in 2015, India has made substantial progress in constructing digital infrastructure. This advancement has yielded significant benefits for the country, facilitating greater government scheme penetration and efficient financial inclusion. The current emphasis of the digital transformation is on developing, implementing, and extensively expanding cutting-edge technologies, including 5G, big data, artificial intelligence (AI), machine learning, blockchain, Internet of Things (IoT), quantum computing, and robotics. Given the linguistic and cultural diversity, the Ministry of Electronics and Information Technology, Government of India, has initiated “Digital India BHASHINI (BHASHa INterface for India).” This initiative aims to establish a national public digital platform for language, utilising AI and other emerging digital technologies to create services and products for citizens. The goal is to overcome linguistic barriers that impede access to technology, extending the benefits of Natural Language Processing to Micro, Small, and Medium Enterprises (MSMEs) and individual innovators in remote areas.
The government has proactively addressed the challenge of low capex by initiating measures to establish a virtuous cycle. This entails steadily amplifying public capital expenditure, especially in crucial infrastructure projects like roads and railways, with the optimistic anticipation that it will catalyse increased private capex. This strategic approach is considered indispensable for revitalising economic growth, showing signs of resurgence. The government has shouldered most of the responsibility since the onset of the COVID-19 pandemic. It is time for the private sector to step in and bridge the gap that the government has left in terms of driving momentum in capex growth.