India’s Infrastructure Push

Infrastructure is universally acknowledged as a key driver of growth. The term infrastructure, however, is usually associated with physical assets, such as roads, ports, power transmission lines, etc. However, in recent years, India's growth story has been closely associated with a strong focus on not only physical, but also social and digital infrastructure.

Budget 2023 gives a powerful thrust to these three dimensions of infrastructure development which, put together, accelerate inclusive growth. The targeted investments will not only create vital physical infrastructure and improve connectivity that will accelerate the movement of passengers and freight, but also create jobs, spur private investments, and provide a cushion against global headwinds.

In Budget 2022-23, India focused on giving the necessary push to the economy by investing in various infrastructure projects. In the upcoming Budget, the infrastructure sector will receive a similar amount to reach India's goal of becoming a USD5 trillion economy by 2025.

What is the Proposed Allocation in the 2023-24 Budget?

• India’s Capital Expenditure:
  • India’s capital expenditure as a percentage of GDP increased from 1.7% in 2014 to nearly 2.9% in 2022-23.
  • For infrastructure, Rs 10 lakh crore (3.3% of GDP) was allocated in the budget 2023-24, an increase of three times from 2019.
• Largest Allocation:
  • The Ministry of Railways received its highest-ever allocation of Rs 2.4 lakh crore, approximately nine times the allocation in 2013-14.
  • The Ministry of Road Transport and Highways saw a 36% increase in its budget to about Rs 2.7 lakh crore.
• Extension of Interest-Free Loan to States:
  • The direct capital investment by the Centre has been further supplemented by a one-year extension of the 50-year interest-free loan to state governments to encourage infrastructure investment and incentivise complementary policy actions, with a significantly increased outlay of Rs 1.3 lakh crore.
    • This will lead to decentralised infrastructure development in urban and peri-urban areas across regions.
    • Increasing allocations to PM Awas Yojana by 66% will not only provide rural workers with housing, but also create jobs.

Why is India's Infrastructure Push Challenging?

• Physical Infrastructure:
  • Land acquisition: One of the biggest challenges in building physical infrastructure is acquiring land, as it often involves resettlement of people and compensation issues.
  • Funding: Funding large-scale infrastructure projects is also a major challenge, as the government may not have sufficient resources and private investment may be limited due to economic and regulatory hurdles.
  • Lack of Technology: India faces challenges in terms of the availability of technology and expertise necessary for complex infrastructure projects.
• Social Infrastructure:
  • Inadequate Human Resources: The shortage of skilled workers, engineers, and managers can be a hindrance to the development of social infrastructure projects.
  • Lack of Public Support: Social infrastructure projects, such as healthcare and education, require public support and buy-in, which can be difficult to secure in a complex political environment.
  • Inadequate Planning and Implementation: Poor planning and implementation can result in substandard facilities and a lack of sustainability, ultimately reducing the impact of the infrastructure push.
• Digital Infrastructure:
  • Digital Divide: There is a digital divide in India, with limited access to technology and the internet in rural areas, which can hinder the development of digital infrastructure.
  • Cybersecurity Concerns: The increasing use of technology also raises concerns about cybersecurity and privacy, making it necessary to have strong regulations and infrastructure in place.
  • Lack of standardization: The lack of standardization and coordination among different players in the digital infrastructure sector can create problems for users and limit the potential for growth and innovation.

What should be the Way Forward?

• Investment in social infrastructure:
  • Investment in social infrastructure can lead to a more productive and proficient workforce, reduced mortality, wasting and stunting, increased social mobility and a higher quality of life.
    • Social infrastructure includes education and skilling, public health and nutrition, drinking water and sanitation.
  • These factors contribute to a stronger and more inclusive economy and holistic development.
• Increased Public-Private Partnerships (PPPs):
  • The government can partner with the private sector to finance, design, construct, and operate infrastructure projects.
• Improved Project Planning and Implementation:
  • The government can streamline project planning and implementation processes to ensure that projects are completed on time and within budget.
• Implementation of Innovative Financing Solutions:
  • The government can explore innovative financing solutions, such as infrastructure bonds, to mobilize additional funds for infrastructure development.
• Encouraging Foreign Direct Investment (FDI):
  • The government can ease regulations and create a favorable environment for foreign direct investment in infrastructure development.
• Building Human Capital:
  • The government can focus on building human capital in the form of skilled labour and technical expertise to support infrastructure development.
    • Some ways to build human capital to support infrastructure development:
      • Investing in workforce development programs that provide job training, apprenticeships.
      • Providing access to quality education and training programs
      • Supporting research and innovation in infrastructure-related fields
      • Fostering partnerships between the public and private sectors to encourage investment in human capital development
  • Schemes to build human capital and support infrastructure development include: Skill India, National Skill Development Corporation (NSDC), Pradhan Mantri Kaushal Vikas Yojana (PMKVY).
• Effective Regulation:
  • The government can establish and enforce effective regulations to ensure the quality and safety of infrastructure projects.
  • Some ways regulations can help:
    • Regulations can set standards for the quality of materials, workmanship
    • Regulations can also specify safety requirements, such as fire safety, evacuation plans, and accessibility standards, which must be met to ensure the safety of the public and the workers involved in the project.
    • Independent inspection and testing which will help to identify any issues or problems that need to be addressed before the infrastructure is put into use.

Drishti Mains Question What are the main challenges in the infrastructure sector in India and what measures can be taken to overcome them?