Budget 2024: With infrastructure in mind, the Modi government has upped India's capital expenditure outlay

File photo of the construction site at a coastal road project in Mumbai. Image: Punit PARANJPE / AFP

There just seems to be no stopping the Modi government when it comes to infrastructure spending.

Last year, after announcing a massive 33 percent hike in capital expenditure to Rs10 lakh crore, Finance Minister Nirmala Sitharaman has now announced an 11 percent spike in capital infrastructure for the next fiscal. Capital expenditure outlay is now pegged at Rs11.11 crore for the next fiscal.

“Building on the massive tripling of the capital expenditure outlay in the past four years resulting in huge multiplier impact on economic growth and employment creation, the outlay for the next year is being increased by 11.1 percent to Rs11,11,111 crore,” said Sitharaman, who was presenting her last budget before India goes into elections this year. “This would be 3.4 percent of the GDP.”

Increased government spending, especially towards capital expenditure, often leads to job creation in addition to stimulating private consumption and investment spending. This year, the Modi government has allotted Rs2.78 lakh crore for the road ministry, up about 2.8 percent compared to last year, while another Rs2.55 lakh crore will be given to the Indian Railways.

Last year, Sitharaman had allocated Rs2.4 lakh crore towards Indian Railways which was some nine times higher than the amount in financial year 2013-14. Across Indian Railways, the government has announced that the funds will be used to create three major economic railway corridors. This includes one for energy, mineral and cement, another for port connectivity, and one for high-traffic density corridors, all in an attempt to decongest the railways and ensure faster movement.

“The projects have been identified under the PM Gati Shakti for enabling multi-modal connectivity,” Sitharaman said. “They will improve logistics efficiency and reduce cost. The resultant decongestion of the high-traffic corridors will also help in improving the operations of passenger trains, resulting in safety and higher travel speed for passengers. Together with dedicated freight corridors, these three economic corridor programmes will accelerate our GDP growth and reduce logistic costs.”

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The railways is currently in the midst of some transformation, with the government looking to replace some existing trains with the Vande Bharat trains. The Modi government had earmarked a plan to roll out 400 Vande Bharat trains by 2025. As of 2024, there are only 41 Vande Bharat trains, and the government will now use funds to concert 40,000 bogies to Vande Bharat standards.

“Forty thousand normal rail bogies will be converted to the Vande Bharat standards to enhance safety, convenience and comfort of passengers,” Sitharaman said.

“This initiative reflects a dedicated effort to elevate passenger safety, comfort and operational efficiency to global standards,” Vivek Lohia, managing director, Jupiter Wagons Limited, says. “As the nation progresses towards modernising its railway infrastructure, this move underscores a commitment to excellence and sets a benchmark for future development.”

India’s infrastructure sector is set to be the biggest driver for the country that aims to be a $5 trillion economy over the next few years, and the higher outlay is only expected to help bridge the gap. “The budget’s increase in capital investment outlay for the fourth time in a row will sustain the momentum the Indian economy is currently enjoying, stimulating private capital expenditure, driving economic growth and increasing consumption,” Neeraj Bansal, co-head & COO-India Global, KPMG in India, says. “Further emphasising efficient logistical development under the PM Gati Shakti initiative, three major railway corridors have been announced, which are expected to significantly enhance India’s supply chain ecosystem.”