At the turn of the 21st century, the slogan “Bijli, Sadak, Pani” became popular as political parties of all persuasions began to promise access to the basic necessities of power, roads and water. As the slogan caught on, governments at both the central and state levels started to focus on creating the capacity required to deliver on the promise.
Within five years, telecom services became more affordable. Once data became cheaper (circa 2016), digital access to banking and other financial services became the norm alongside various public services provided by the government. The civil aviation network also expanded, and public transport improved with the roll-out of metro systems across many cities.
The expectations of the electorate led to policies that drove the creation of infrastructural capacity. But along with capacity, expectations have also been rising. The people have come to expect steady improvements in efficiency across all infrastructural segments, and to take such improvements, more or less, for granted.
Citizens want better roads, more metro lines, more stable power, faster internet connections, smoother digital provision of banking services, online access to more government services, etc. Their concerns have also expanded to include demands for better healthcare, inflation-mitigation measures and, above all, the creation of employment opportunities.
All this increases the pressure on the NDA 3.0 government to increase allocations to address these broad concerns of social welfare. At the same time, it has to maintain allocations to infrastructure because capacity creation is far from done. It also has to do this with limited resources, since it has to rein in the fiscal deficit and, indeed, has committed to doing so.
Union Budget 2024-25 is, therefore, walking a tightrope. It has maintained, or modestly increased, allocations for most infrastructure segments while maintaining fiscal discipline. This is commendable – there is no way to meet the ambitious targets set for 2030 and beyond without investment continuity.
The budget ensures that the momentum in civil aviation, road and rail transport, maritime infrastructure, power, oil and gas, etc. will continue through 2024-25 at least. However, public expenditure has been supporting infrastructure creation for several years without commensurate commitments from private enterprise, and without the drive created by strong demand in areas such as real estate.
In the long term, if private investment does not pick up, this level of public investment will be hard to sustain. Policies across sectors have been tweaked multiple times to encourage private sector investment and FDI inflows.
Rather than policy, the private sector’s caution regarding higher commitments to infrastructure comes from a different place: concerns about profitability. Infrastructure investments are long term, and tariffs are largely controlled. Profits are “back ended” and driven by rising activity once capex is completed.
Road companies would like higher toll collections, telecom service providers want higher ARPUs (average revenue per user), airlines want higher ASKs (available seat km), airports more cityside revenues, ports and rail more cargo movement, housing companies more demand for affordable housing, etc.
All this can only happen if economic activity picks up and a higher proportion of GDP is generated by consumption rather than public expenditure. Of course, higher economic growth would also translate into higher tax collections, giving more headroom for expenditure.
This is where the focus on creating capacity over the last four years should pay off. Enhanced capacity will ensure fewer bottlenecks as activity increases. Policy continuity and high public expenditure should translate into higher consumption and stronger private investment.
That’s the narrative we hope to see through FY 2025 and FY 2026.
P.S.: As we celebrate the twenty-sixth anniversary of Indian Infrastructure, we take this opportunity to rededicate ourselves to the mission of the magazine – to be the most trustworthy source of information and analysis for the Indian infrastructure sector. We would also like to thank our readers, editorial contributors and advertisers for their continued support.