Infrastructure

Budget 2022 outlined a set of strategies for the Indian economy for the next 25 years. Infrastructure has been identified as a critical component of economic growth and long-term development in order to meet the US$ 5 trillion GDP target. PM Gati Shakti tech platform – a comprehensive infrastructure development strategy that comprises a multimodal connectivity plan with the purpose of coordinating the planning and execution of infrastructure projects to reduce logistical costs and accelerate growth – will drive infrastructure development.

As our economy recovers from the pandemic, an increase in capital spending was expected, and our FM Sitharaman delivered. Capital expenditure of Rs. 7.5 trillion, or 2.9 percent of GDP, was a significant highlight of her budget address on February 1, 2022. Capex now accounts for 19 percent of total spending, the highest percentage in 18 years. So, why is the infrastructure industry getting so much attention? The answer can be found in the basic concept of macroeconomics known as the “multiplier effect.” The “multiplier effect” of spending 1% of real GDP on infrastructure is projected to enhance GDP by at least twice that amount, resulting in economic gains and a positive credit impact. The influence of infrastructure development on the economy is summarised in the table below: –

SectorImpactNature of ImpactProbable Change in Sector OutlookRemarks
CementVery highDirect-immediateStable to positiveGrowth comes from direct input in infrastructure
SteelVery highDirect-immediateNegative to stableAbsorb excess capacity and generate growth from direct input in infrastructure
Automobiles-commercial vehiclesHighDirect-short termStable to positiveGenerates growth from direct use in construction and transportation activities
Real estateMediumDirect-medium termNegative to stableHelps generate demand for unsold inventories, improves connectivity, and supports land prices
Capital goodsMediumIndirect-medium termNegative to stableResults in new capital orders (but with a lag), if manufacturing demand picks up due to infrastructure improvements
Automobiles-passenger vehiclesMediumIndirect-medium termStableDecongestion of roads to support car demand, infrastructure development will still be inadequate to replace private transport
ConsumersLowIndirect-medium termStableHigher economic activity likely to result from uptick in consumer spending
UtilitiesLowIndirect-medium termStableHigher economic growth would support demand

Source: S&P Global

Let us look at the government budget’s exclusive Infra sector announcement:

  1. PM Gati Shakti Master plan: A transformational approach for growth and sustainable development will be driven by 7 engines: roads, railways, airports, ports, mass transport, waterways & logistics infra
  2. 25,000 KMs of national highway with Rs. 20,000 crore allocation and 4 multimodal logistics parks in FY23. Contracts to be awarded in 2022-23 for implementation of Multimodal Logistics Parks at 4 locations through PPP mode
  3. 2000 KMs of rail network to be built as a part of ‘Atmanirbhar Bharat’ along with 400 new Vande Bharat trains with better energy efficiency and passenger riding experience
  4. 100 PM Gati Shakti cargo terminals are to be built in next three years
  5. Railways to develop new products and efficient logistics services for small farmers and SMEs to provide seamless solutions for movement of parcels.
  6. ‘One Station-One Product’ concept for rail stations will be used for the promotion of supply chain of local products through railways.
  7. A committee of urban planners, economists and institutions will be formed to make recommendations on urban sector policies, capacity building, planning, implementation and
  8. Allocation of Rs.19,500 crore for production linked incentive scheme for manufacturing of efficient solar modules. This will lead to setting up 30-35 GW solar power capacity and 25-30 GW of cell capacity by 2024
  9. Issuance of sovereign green bonds which will help reduce carbon intensity; set-up of government-backed funds for climate action, tech-based and agricultural initiatives
  10.  To achieve target of 280 GW of installed solar capacity by 2030, additional allocation of INR 19,500 crore for PLI scheme for domestic manufacture of high efficiency modules (with priority to fully integrated manufacturing units from polysilicon to solar PV modules)

The key announcements in the infrastructure industry are listed above. The administration has a clear development objective, with about Rs. 1 trillion provided to states to help them catalyse the entire economy. The difficulty now is to ensure that this massive amount of capital is used for the reason for which it was budgeted. I’d like to emphasise the Gati Shakti master plan once more because it will be driven by cutting-edge technology, and the goal of creating a single platform for driving infrastructure development is to eliminate manual roadblocks in implementation, timely project assessment, avoiding overlapping activities, streamlining project planning, and, most importantly, proper fund channelling. To summarise, we should all be on the lookout for promising growth opportunities in India.

Author

Pranav Dorle

Editor, TJEF