Infra: Budgeting For Growth
By prioritising infrastructure, manufacturing and housing, Sitharaman focuses on asset creation to drive economic growth, job creation and development
Infrastructure, manufacturing and housing—critical engines driving the nation's long-term economic development—have remained key focus areas in Union Budget 2024. In infrastructure, the budget has directed most of the increased expenditure towards asset creation, such as housing and roads. By continuing its focus on capital expenditure, the budget aims to stimulate economic growth, create jobs, and build a solid foundation for future development.
Several schemes for Bihar, under the "Purvodaya" plan, aim at all-round development, including expressways, power projects, new airports, medical colleges, and sports infrastructure. Similarly, Andhra Pradesh will receive support for industrial development and basic infrastructure enhancements under the AP Reorganisation Act.
The government has continued to prioritise substantial capital investments in the infrastructure sector to elevate the nation’s GDP and spur job creation. Budget proposals are forward-looking with strategic initiatives aimed at balancing public and private investment in infrastructure including viability gap funding and framework for market financing, tax reforms aimed to attract foreign investment in India’s infrastructure growth.
Further, the government’s commitment to introduce reforms pertaining to the ownership, leasing, and flagging of ships to a great extent shall help in increasing India’s share in the global shipping industry. Steps being undertaken for digitisation of land records in urban areas with potential of further reduction in higher stamp duty levied by state governments will encourage faster deployment of funds for development. Further, putting together a mechanism to track demand for infrastructure, utilisation of facilities and collecting financial data under a single access point will help in optimal allocation of scarce resources and prioritisation of infrastructure projects based on sub-sectors and regions.
Setting the Agenda
Experts believe this budget sets the stage for the next five years of the Modi 3.0 government with structural growth in focus and would be positive for consumption and infrastructure-oriented sectors.
Budget 2024-25, core to the vision of Viksit Bharat, maintains the same amount of allocation of Rs 11.11 lakh crore for the infrastructure sector (as announced in the interim budget).
As per the Economic Survey for 2024, the private sector’s investment between 2019 to 2023 has remained less than a quarter of the total contribution. To encourage higher private participation and to optimise the working capital requirements, the government has proposed to promote viability gap funding.
On similar lines for an all-round development of state infrastructure, long-term interest-free loans are proposed for state governments, says Neetu Vinayek, Partner & Leader, Infrastructure, Tax & Regulatory Services, EY India. "Announcements for development of plug-and-play industrial parks, industrial corridors, roads, etc. are expected to create opportunities for generating employment, improving connectivity, and promoting tourism which shall further boost the Indian economy," she adds.
Infrastructure & Housing
The government is poised to unleash a wave of economic growth through a robust capital expenditure programme over the next five years, commencing with a substantial allocation of Rs 11.11 lakh crore for the current fiscal year, which constitutes approximately 3.4 per cent of the GDP. This significant investment underscores the government’s commitment to bolstering infrastructure and fuelling long-term economic development. In a bid to empower states and enhance their resource allocation for infrastructure projects, a provision of Rs 1.5 lakh crore has been earmarked for long-term interest-free loans. This strategic financial support is designed to enable states to meet their infrastructure needs more effectively, fostering a conducive environment for sustained economic progress.
The launch of phase IV of the PM Gram Sadak Yojana (PMGSY) is set to revolutionise rural connectivity by providing all-weather road access to 25,000 rural habitations. This ambitious initiative will not only enhance mobility and access to essential services for rural communities but also stimulate local economies by integrating them more closely with broader market networks.
Housing development is another cornerstone of the government’s economic strategy. An impressive target of constructing 3 crore additional houses under the PM Awas Yojana has been set for both rural and urban areas, aiming to provide affordable housing solutions to millions of Indians. In a novel approach to addressing housing for industrial workers, rental housing will be facilitated through a public-private partnership (PPP) model, ensuring that industrial workers have access to quality living conditions close to their workplaces.
Furthermore, the housing needs of 1 crore urban poor and middle-class families will be comprehensively addressed through an unprecedented investment of Rs 10 lakh crore. This monumental investment will cater to the diverse housing requirements of these segments, ensuring that urbanisation progresses in an inclusive and sustainable manner. Welcoming the move, Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE says, “We anticipate that the rental housing market will become more organised, with new policies and regulations enhancing safety, transparency, and availability. Many cities are poised to benefit from these changes. Lastly, transit-oriented development will not just facilitate the development of cities but also generate employment across ancillary industries.”
Allocation of Rs 26,000 crore for highway development in Bihar, including the construction of a two-lane bridge over the Ganga and the development of highways like the Patna-Purnea Expressway and Buxar-Bhagalpur Expressway. Three crore additional houses in rural and urban areas under the Pradhan Mantri Awas Yojana in the country have been announced, along with central assistance of Rs 2.2 lakh crore for urban housing over the next five years.
Sitharaman also proposed an interest subsidy scheme to facilitate loans at affordable rates for urban housing works. The focus on infrastructure has accelerated with increased outlays for railways, promise for more airports to accommodate the growth appetite of airlines, metros, dedicated commodity corridors for cement, freight, and sea ports as well as continued focus on housing-for-all shall further boost demand for cement.
Boosting Telecom Infra
The telecom sector is always considered one of the strategic ones relevant for the growth story of the Indian economy and hence, in the recent past, we have seen a slew of reforms announced by the government to enhance transparency and ease of regulatory burden on the industry players.
The continuous reforms in this sector have resulted in the increase of overall teledensity (number of telephones per 100 population) from 75.2 per cent in March 2014 to 85.7 per cent in March 2024. Further, the internet subscribers jumped from 25.1 crore in March 2014 to 95.4 crore in March 2024. The same is on account of data cost being reduced substantially over the past decade, thereby improving the average wireless data usage per subscriber.
The government’s next ambition is to indigenise telecom equipment as it is a strategic sector from a national security and growth perspective. In the recent past, we have seen concentrated efforts towards promoting ‘Make-in-India’. The PLI scheme introduced for promoting domestic manufacturing of the telecom and networking gear has been able to garner an investment of Rs 3,402 crore.
However, since the development of technology (research and development) requires huge investment, certain key high-value components (such as chips) are still imported from outside India. To address this, the government has decided to allocate 5 per cent of the annual collections from USOF towards R&D in telecom sector. The increase in budgetary allocation towards Bharatnet and technology upgradation of BSNL has attracted the attention of the industry as the government is one of the significant customers for the telecom equipment manufacturers.
The strengthening of PMI framework coupled with the PLI scheme and increase in import duties can help in realising the vision of Make-in-India for the world. The increase in custom duties on PCBA may result in increased cost for the telecom service providers who are in the process of rolling out of 5G networks, says Kunal Chaudhary, Partner & Telecom Tax Leader, EY India. “The vision of the government is to increase the participation of India in global value chain, thereby promoting domestic manufacturing,” he adds.
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