Infrastructure will continue to be the cornerstone of government's policy paradigm in the coming Union Budget. However, following a hefty surge in allocation for critical sectors like railways, defence, power, and logistics in recent years, there is a likelihood of a more pointed approach towards government investments in this year’s budget exercise. Overall focus on this segment will still hold ground due to the existing the National Infrastructure Pipeline (NIP), with particular emphasis on initiatives like the PM gati-shakti national master plan and the jal jeevan mission (JJM).
In the last Union Budget held in July 2024, Union Finance Minister Nirmala Sitharaman offered a significant boost to this critical economic theme while emphasizing fiscal consolidation. She noted that significant investment the Central Government has made over the years in building and improving infrastructure has had a strong multiplier effect on the economy. FM noted that government will endeavour to maintain strong fiscal support for infrastructure over the next 5 years, in conjunction with imperatives of other priorities and fiscal consolidation. Some new schemes and measures were introduced to support manufacturing, services, and the energy sector. The budget also included supplementary allocations to Bihar and Andhra Pradesh to boost capital investment. In total, the FM provided Rs 11,11,111 crore for capital expenditure, marking a total allocation equivalent to 3.4% of GDP.
Budget Expectations:
Industry body FICCI has noted recently that the thrust laid by the government on capex over the last few years aided recovery and ensured support to the growth momentum.
Given the uncertainty amidst persisting global headwinds, government’s thrust on public capex on physical, social and digital infrastructure will be important to maintain the growth momentum, according to FICCI.
The quality of the fisc has improved over time with revenue expenditure being contained and productive capital expenditure being prioritized. FICCI has proposed government to consider increasing capex in FY26 by 15% over 2024-25.
There is likely to be continued focus on building long term infrastructure which will enhance aggregate productivity.
FM is also expected to provide hefty allocation for Healthcare and Education as India looks to enhance its demographic dividend.
Manufacturing will stay in focus though challenges posed by rapid technological advances globally need to be kept in mind while devising long term policies for this sector.
Outlook:
The capital expenditure outlay in the last year’s Union Budget 2023-24 was increased by a staggering 37.4% to Rs 10 lakh crore. The allocation in July marks an increase in the overall spends though it is less robust in percent terms compared to the FY24 amount. Finance Minister had noted in that Interim budget presented in February 2024 that tripling of capex in the last four years has resulted in a multiplier effect on economic growth and employment generation. In last Budget, government has allocated Rs 11.11 lakh crore towards capital expenditure marking an increase of over 5 times in the last 10 years though most of this surge has been witnessed in the last half a decade. The Covid-19 linked challenges on the economic front warrant a hefty push by the government and given the current moderation in GDP growth, there is a likelihood that FM will stick to her recent year’s agenda and offer a liberal commitment to infrastructure spending in general.
Current trends in corporate investments are healthy despite the setback to economic growth in Q2FY25. Ministry of Finance stated in a latest update that India’s investment ecosystem and external commercial borrowings (ECBs) have witnessed significant developments over the past few years. The recent report by the State Bank of India (SBI) has highlighted trends in investment announcements, private sector’s contribution, and role of ECBs in corporate financing. Investment activity in India continues to grow at a rapid pace, with significant contributions from the private sector. In 9MFY25 i.e., the nine months of FY25 (April-December 2024), total investment announcements stood at Rs 32.01 lakh crore. This marks a 39% increase from Rs 23 lakh crore in 9MFY24, reflecting a positive investment outlook. The private sector accounted for nearly 56% (FY24) and nearly 70% (9MFY25) of these announcements, signaling strong corporate confidence.
As of March 2024, the gross block of Indian corporates reached Rs 106.50 lakh crore, compared to Rs 73.94 lakh crore in March 2020. Over the last five years, an average of more than Rs 8 lakh crore has been added annually to the corporate gross block. Additionally, capital work in progress stood at Rs 13.63 lakh crore in March 2024, indicating strong ongoing project development. Household Net Financial Savings (HNFS) in India improved to 5.3% of GDP in FY24 from 5.0% in FY23. Additionally, savings in physical assets increased from 12.9% of GDP in FY23 to 13.5% in FY24.