India's aspiration to become an economic superpower will need the support of physical infrastructure. India also needs to plan for emerging technologies in renewable energy and tackle its crumbling cities by 2029
In the aftermath of the outbreak of the Covid-19 pandemic and the resultant lockdowns, the Indian government stepped up capital expenditure, especially on infrastructure. This was not just prompted by the immediate need to shore up the domestic economy, cushioning it against the inevitable crash in economic activity, but the government also spotted an opportunity to address gaps in the country’s infrastructure.
This increase in government spending is apparent in the gross domestic product (GDP) data for the second quarter of FY24 (Q2FY24). Growth in the bellwether of investments, gross fixed capital formation (GFCF), was at a five-quarter high of 11% year-on-year. Meanwhile, government spending rose by a 10-quarter high of 12.4%, thanks to the focus on capital expenditure. Besides, the investment rate, measured as the nominal GFCF-to-GDP, rose to 30% in Q2 from 29.1% a year ago.
The central government is estimated to spend about `23.3 lakh crore as capital expenditure between FY22 and FY24, including the outlay of Rs 10 lakh crore this fiscal. Thanks to this increase in outlay, India rose by six places to rank 38 out of 139 countries in the seventh edition of the World Bank’s Logistics Performance Index 2023. The index takes into account factors like physical infrastructure, customs clearance, tracking, and timeliness. The government aims to move to rank 25 by 2030.
As India aims to become a $5-trillion economy in the next few years and a $30-trillion economy by 2047, such spending on infrastructure will play a key role. What’s more, with countries looking at a China+1 diversification strategy, it becomes even more imperative for India to expand and modernise its physical infrastructure over the next few years to become a viable alternative to foreign investors.
A recent report by consulting services firm RSM India highlighted many of these concerns. “When we compare India’s logistics footprint against the world’s three other large economies, the US, China, and Japan, it is evident that India has far more distance to cover in terms of logistics infrastructure, equipment, processes, and mindset. Road transportation constitutes a whopping 60% in India, in comparison to Japan (10%), China (30%) and the US (37%),” it pointed out in its report ‘The Logistics Navigator’.
