In 2022-23, GoI’s capital expenditure will jump to Rs 7.5 lakh crore, a staggering 82% rise in two years. For the pandemic-hit Indian economy, this is not a small sum. But more than a number, it is a marker of what Modi 2.0 is planning to get a handle on India’s battered economy.

It was a bit of a surprise when Finance Minister Nirmala Sitharaman’s Budget 2022 did not take the usual route of handouts and sops when assembly elections in five states are around the corner. Instead, she opted for an infrastructure-fuelled growth, loosening the purse strings for what she dubbed as the seven engines — roads, railways, airports, ports, mass transport, waterways, and logistics. In her speech, the FM said the budget provides an impetus on growth, laying a parallel track of, one, a blueprint for Amrit Kaal (25 years leading to the centenary of India’s independence) and, two, big public investment for modern infrastructure that will ready India for its 100th year.

FM’s strategy is simple: spend more in the core sector and grow. Her calculation is, a massive release of funds for infrastructure projects will be a shot in the arm for a large number of core sector suppliers such as steel and cement, which will create more jobs and increase economic demand — the two booster doses the economy needs. In Budget 2021, FM had raised the capex (capital expenditure) by 34.5% to Rs 5.54 lakh crore, and in the recent budget, she enhanced it by 35.4% to Rs 7.5 lakh crore.

Such a robust expansion of capex in two successive budgets means GoI is putting a spotlight on infrastructure. The emphasis is on growth, not subsidies. The big question is how soon will this expanded public spend lead to an increase in private sector investments? Also, does India have enough shovel-ready projects if the government continues with this policy for the coming years as well? Even today, a question arises on whether Indian Railways, for example, has enough projects to absorb the Rs 1.37 lakh crore earmarked in the budget, up from Rs 30,000 crore in 2020-21?

Commerce and Industry Minister Piyush Goyal tells ET that massive public spending on infrastructure will boost the private sector as well. “Investments in infrastructure have a multiplier effect of four times of the money spent. More money in infrastructure also means more jobs. Youth, in particular, will benefit a lot in terms of employment and new businesses,” he adds.

Amitabh Kant, CEO of government think tank NITI Aayog, says an expansion in capex is what the nation needs today, and two successive budgets have delivered that. “With wide-ranging economic reforms already introduced, complementing these reforms with investments in infrastructure will lead the country into a path of sustained growth,” he says. “Enhanced economic opportunities and a lower cost of logistics will increase demand in the economy, both domestic and external. With increased demand, we will see private investment increasing,” he adds.

So the government’s strategy is based on the premise that a steep rise in infrastructure spending will serve two purposes. One, it will create demand for several industries linked to steel, cement, pipeline, construction equipment etc, also raising the capacity utilisation of these factories. Two, it will boost employment across India, which in turn will increase demand and, thereby, private consumption. The advance estimate of private consumption for the current fiscal year shows the nation has not yet reached the prepandemic level. It’s still 97.1% over 2019-20, according to the latest Economic Survey. Infra expert and chairman of CII’s national council on infrastructure, Vinayak Chatterjee, estimates that the rise in capital expenditure will take capacity utilisation of sectors such as steel, cement, water pumps, construction equipment etc, to 80-85%. “Once these industries reach that level of capacity utilisation, they will necessarily have to invest in new factories. I expect the government’s move will crowd in private investments in the second half of the fiscal year,” says Chatterjee, adding that several EPC (engineering, procurement, construction) contractors will now be forced to increase their balance sheet size of equity once they have a larger order book, mainly to maintain a good debt-equity ratio. Those companies will then raise funds from the stock market or private equity market, thereby fuelling private investments.

Meanwhile, infrastructure ministries and their allied agencies in roads, railways, shipping, etc, have already prepared lists of projects that will absorb the enhanced capital outlays. A senior officer at the National Highways Authority of India (NHAI) says a blueprint for deploying a capex of Rs 1.25 lakh crore for civil construction work of road assets is ready. In total, the NHAI has been allotted a capital outlay of Rs 1.34 lakh crore for 2022-23, which is about 70% of the ministry of road transport and highways’ share. In addition, NHAI aims to raise Rs 20,000-30,000 crore through innovative financing mechanisms such as securitisation of toll through special purpose vehicles for some flagship corridors like Delhi-Mumbai expressway and DelhiAmritsar-Katra expressway.

For the ministry of ports, shipping and waterways, the budget has earmarked a capital outlay of Rs 574 crore, a relatively smaller amount than that for railways or roadways. Minister Sarbananda Sonowal, however, says his ministry has a key role to play in the government’s new scheme. “Out of seven engines of the PM GatiShakti National Master Plan, two — ports and waterways — belong to our ministry. We have a major role to play. Thanks to this integrated approach under GatiShakti, a port, its connecting road and a railway hub are often planned simultaneously,” says Sonowal. As FM emphasises in her budget, all seven engines will pull forward the economy in unison.

CFO of Larsen & Toubro (L&T) R Shankar Raman says the massive rise in capital expenditure will result in credit growth, which in turn will create more opportunities for the financial services sector. Known for engineering and construction, L&T has a financial services arm, too. Raman has a suggestion for the government. “Since timely implementation holds the key for impactful outcome of the enhanced capex programme, the government should posthaste constitute a high-powered task force and charge it with the responsibility of detailing out the implementation strategies,” he says.

A rise in capital expenditure has been aligned to the recommendations of most economists. But a whopping 35% hike was not anticipated, says former chief economic adviser Arvind Virmani. He says, “Given the slow recovery of private investment due to Covid uncertainties, clearly, higher government investment is needed to raise aggregate investment, crowd in private investment, increase aggregate demand, generate jobs and raise the income of the unskilled.” He expects the Omicron wave to be over by March, and a sharp recovery of contact services, along with associated jobs and wages, in April.

There are two unanswered questions, though. First, will the budgeted capital expenditure outlay be utilised fully in 2022-23? We don’t know it as yet, but if one takes into account experiences of the current fiscal year, a full utilisation of the outlay is possible. For 2021-22, Rs 5.54 lakh crore was earmarked as capital expenditure; the revised estimate is Rs 6.03 lakh crore. Even if we discount Rs 51,971 crore, which was spent for the settlement of outstanding liabilities of Air India and other sundry commitments, the overall target was met.

The second question is whether India has enough shovel-ready projects? Based on a back-of-the-envelope calculation, Chatterjee says India has ready projects worth over Rs 30 lakh crore, enough for the next few years. “But we need to develop a new generation of projects in the medium to long term. Otherwise, India will face a paradoxical situation where it has more financing capability than shovel-ready projects,” he says.

For now, money and machines are ready.