The Indian Finance Minister, Nirmala Sitharaman, presented the Financial Year (FY) 2023/2024 (April 2023 to March 2024) budget on 1st February 2023. The budget focuses on increased capital spending, income tax relief to the middle class, and efforts to maintain financial discipline. At a time when one-third of the world is hovering on the brink of a recession, India’s economy remains a comparative bright spot in 2023. According to the Economic Survey for FY2022/2023 presented by Ms Sitharaman in late January 2023, India’s economy is projected to grow in the range of 6%-6.8% in the next fiscal year.

In its latest budget, the government increased its total expenditure by 7.5%, from an estimated expenditure of INR41.9 trillion ($522.2bn) in FY2022/2023 to INR45 trillion ($561.6bn) in FY2023/2024. The latest budget includes a revenue expenditure of INR35 trillion ($436.8bn) and a capital expenditure of INR10 trillion ($124.8bn). In line with its commitment to boost economic growth by investing in infrastructure development, the government has increased the allocation for capital expenditure by 37.4%, compared to the revised estimates of the FY2022/2023 Budget. The capital investment outlay for FY2023/2024 is equivalent to 3.3% of the country’s GDP and is nearly three times the outlay made in FY2019/2020. Of the total capital expenditure earmarked for the next fiscal year, the highest share – equivalent to 25.8% – is allocated to the Ministry of Road Transport and Highways, while the Ministry of Railways has a share of 24%, the Ministry of Communications commands a share of 6.3%, the Ministry of Petroleum and Natural Gas accounts for 3.5%, and the Ministry of Housing and Urban Affairs will receive a 2.6% share.

The budget is based on seven key priorities, including inclusive development, reaching the last mile, infrastructure and investment, and green growth. The government expects investment in infrastructure and productive capacity to have a large multiplier effect on economic growth and employment. It has therefore increased capital investment outlay steeply for the third year in a row, in FY2023/2024. This is in line with the government’s focus on enhancing economic growth potential and job creation, attracting private investments, and providing a cushion against global headwinds.

As part of the latest budget, the government announced a capital outlay of INR2.7 trillion ($33.7 billion) for the Ministries of Road Transport and Highways (MoRTH). Of the total MoRTH’s budget, the government increased its allocation to the state-owned National Highways Authority of India (NHAI) by 14.1%, from INR1.4 trillion ($17.7bn) in the revised FY2022/2023 Budget to INR1.6 trillion ($20.2bn) in the FY2023/2024 Budget. This increase in allocation is necessary to help the ministry meet its target (announced as part of the FY2022/2023 Budget) to build 25,000km of highways by the end of FY2023/2024. Although the government had set a target of building 13,000km of highways in FY2022/2023, the speed of construction was affected due to unfavourable weather conditions, rising interest expenses, and increasing land acquisition costs. Subsequently, the ministry is expected to build 11,000km of highways in FY2022/2023 and 14,000km of highways in FY2023/2024. In another positive development, as part of its latest budget, the government announced a record-high capital outlay of INR2.4 trillion ($29.9 billion) for the Ministry of Railways. The funding will be used for the construction of a new railway track, the implementation of gauge conversion, electrification and signalling works, developing facilities at railway stations, and improving rolling stock. The financing will support the Ministry of Railways’ target of achieving 100% electrification of its rail network by the end of 2023. The government has also identified 100 critical transport infrastructure projects for last and first-mile connectivity for ports, coal, steel, fertilizer, and food grains sectors; they will be taken up on priority with an investment of INR750bn ($9.4bn), including INR150bn ($1.9bn) from private sources.

Under its priority of ‘Green Growth’, the government has announced a significant investment in the energy transition and energy storage projects, in line with its target to reach net-zero carbon emission in India by 2070. As part of the latest budget, the government announced an allocation of INR350bn ($4.4bn) for priority capital investments towards energy transition and net-zero objectives and energy security. The government had also reported that Battery Energy Storage Systems with a capacity of 4,000MWH would be supported with Viability Gap Funding. Additionally, an inter-state transmission system for evacuation and grid integration of 13GW of renewable energy from Ladakh will be constructed, with an investment of INR207bn ($2.6bn), including a central support of INR83bn ($1bn).

Housing, healthcare, logistics, and irrigation are some of the other sectors that will benefit from the recent budget allocations. To provide affordable housing and address the issue of housing shortage in the country, the government has increased its allocation to the PM Awas Yojana by 66%, to INR790 billion ($9.9 billion) in FY2023/2024. Additionally, 500 new ‘waste to wealth’ plants will be established, under the GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) scheme, to promote the circular economy. This includes the construction of 200 compressed biogas (CBG) plants at a total investment of INR100bn ($1.2bn).

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The government has also proposed to revamp the credit guarantee scheme for the Ministry of Micro, Small & Medium Enterprises (MSMEs), with the revamped scheme taking effect from April 1st 2023, through the infusion of INR90bn ($1.1bn) in corpus. Additionally, the government announced that 157 new nursing colleges would be established, in co-location with the existing 157 medical colleges established since 2014.

The government is also focusing on enhancing opportunities for private investment in infrastructure. The newly established infrastructure finance secretariat will assist all stakeholders in attracting more private investment in sectors such as railways, roads, urban infrastructure, and power. As part of the budget, the central government also announced that it would continue its 50-year interest-free loan to state governments for one more year to boost investment in infrastructure and incentivize them for complementary policy action, with an enhanced outlay of INR1.3 trillion ($16.2bn).

The government’s focus on boosting investment in infrastructure, coupled with a strong pipeline of construction projects, is expected to support the Indian construction industry’s growth over the coming years. According to the Infrastructure and Project Monitoring Division (IPMD) of the Ministry of Statistics and Programme Implementation, as of January 1st, 2023, there were 1,438 projects in the pipeline, with an anticipated cost of INR20.4 trillion ($253.9bn). By segment, the road transport and highway sector account for the highest share of the project pipeline, in terms of the original cost of the project – equivalent to 18.7%, followed by the petroleum (18.7%), railway (18.3%), and urban development (13.9%) sectors. Despite the strong pipeline of projects, factors such as delays in land acquisition, inadequate manpower, delays in receiving necessary permits, and rising construction material prices will pose a downside risk to the industry’s outlook in 2023.