India announces big hike in infrastructure spending

In its budget for the financial year April 2023 to March 2023, the Indian government promised a 7.5% increase in spending, from Rs 41.9 trillion (£422bn) to Rs 45 trillion (£453bn). The capital investment outlay for the forthcoming financial year is equivalent to 3.3% of India’s GDP.

Pooja Dayanand, analyst at Global Data, said: “The sharp increase in capital investment is in line with the government’s focus on boosting economic growth and increasing job creation, through investment in infrastructure development. The increase in funding will also be necessary for assisting ministries in implementing projects that have been delayed by constraints such as rising interest rates and construction material prices, and labour shortages.”

The budget is based on seven key priorities, including inclusive development, infrastructure and investment, and green growth. As part of the latest budget, the government increased its allocation to the state-owned National Highways Authority of India (NHAI) by 14% to Rs1.6 trillion. It had also announced a record Rs2.4 trillion for the Ministry of Railways.

Dayanand continued: “The NHAI had been facing constraints in reaching its construction targets and is likely to miss its target for the second time in a row in the financial year 2022-2023. The increase in its budget allocation could help the NHAI in meeting its targets in the upcoming financial year, while completing its backlog targets. The significant capital expenditure allocations for highways and railways will also help in improving connectivity, easing traffic congestion, and reducing travel times.”

The government also increased its allocation to the Ministry of Housing and Urban Affairs (PMAY) by 66% to Rs790bn. “The increase in allocation for the PMAY will help in increasing the supply of affordable housing and addressing the issue of housing shortages,” said Dayanand. “However, increasing inflation and rising interest rates are likely to affect housing demand in the short term.”

The budget also includes significant allocations for supporting the renewable energy, healthcare, logistics, and agriculture sectors. The Indian government has announced an allocation of Rs350bn for priority capital investments towards energy transition and net zero objectives to help reach its target of net zero emissions by 2070.

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