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Pre Budget Reports News

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(31 Jan 2024, 15:46)

Infrastructure: Rural and urban connectivity to stay in focus


The government needs to continue its thrust on capital expenditure in order to push up the economic momentum over coming years. The capital expenditure outlay in the last Union Budget 2023-24 was increased by 37.4% to Rs10 lakh crore. Infrastructure and logistics are key drivers of the economic growth. Through launch of PM GatiShakti National Master Plan and National Logistics Policy, government has prioritized large-scale infrastructure projects and improved logistics service efficiency respectively. Some of the key reforms to improve logistics efficiency include, 23 States/UTs notified State Logistics policies, Land Port Management System (LPMS), digitization at Ports; NLP Marine, and FASTAG. Investments in infrastructure yield a direct multiplier of over 2.5x on the economy, and roads sector in India has presented itself as a priority recipient of these investments. Over the last decade, there has been more than 50 per cent increase in the total length of highways in the country.

Budget Expectations:

The industry body FICCI has demanded extension of concessional tax regime for manufacturing operations for at least five years.

Concessional tax regime was rolled out in the year 2019 as a slowdown stimulus mandating a 15% tax rate for newly set up manufacturing companies. FICCI wants the sunset clause to be extended by another five from the current deadline of March 2024.

It is expected to see continued government emphasis on safety and timely infrastructure upgrades.

The government will continue to prioritize rural and urban connectivity, railways, ports, aviation, and highways for their significant impact on growth and employment.

The Production Linked Incentive (PLI) schemes will continue to be in focus. To supplement this, the government could consider extending the concessional tax regime for manufacturing operations for at least five years. (The Finance Act 2021 had extended the sunset date under concessional tax regime of section 115BAB by only one year to 31 March 2024).

Outlook:

The latest GDP release reported encouraging data on capital formation. Gross fixed capital formation reported an increase by 10.3% in 2023-24. Investment (GFCF) to GDP ratio has improved to a decadal high of 34.9% in 2023-24. India is at an important inflection point and given the current global developments and associated headwinds, the government should continue to lay major thrust on public capital expenditure (on physical, social and digital infrastructure) in the forthcoming budget. Investing in green infrastructure will also gain prominence to align with international sustainability targets and help build an inclusive growth agenda at the macro level.


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