India’s improved logistics spending by 1.7% to set the stage for a $5 trillion economy

India will spend a whopping 1.7 percent of its GDP on transport infrastructure this year – about twice as much as America and most European countries – an achievement even noticed by The Economist, who called it a “flashy” upgrade phase to reach a $5 trillion economy.

Prime Minister Narendra Modi’s government has increased infrastructure capital spending to $122 billion for the fiscal year commencing April, as it is expected to provide a strong boost to job creation and boosting economic activity amid a global slowdown.

According to official figures, the Modi government has allocated Rs 2.4 lakh crore for railway investment, nine times the amount in FY2013-14. The funds flow mainly into the construction of tracks, new wagons, electrification and the expansion of stations.

The road allocation has increased by 36 per cent to Rs 2.7 lakh crore for 2023-24. Another focus is the revitalization of 50 additional airports, heliports, seaports and aprons to improve regional air connectivity.

The government has identified 100 critical transport infrastructure projects for last- and first-mile connectivity for the ports, coal, steel, fertilizer and food grain sectors in which it plans to increase investment. “They will be prioritized with an investment of Rs 75,000 crore, including Rs 15,000 crore from private sources,” Finance Minister Nirmala Sitharaman had said in her 2023-24 budget presentation speech on Feb. 1.

Unprecedented infrastructure transformation at such scale and pace will help India meet its goal of going from $3.5 trillion today to a $5 trillion economy by 2025-26, according to The Economist in its latest edition.

In the fiscal year beginning in April, road and rail will account for nearly 11 percent of central government capital spending, up from 2.75 percent in 2014-15.

If infrastructure were a central government department, it would have the third-largest budget after the finance and defense ministries. The stated goal of this “generous spending” is to reduce logistics costs within India from around 14 percent of GDP today to 8 percent by 2030, it said.

Alongside an increase in infrastructure spending, bureaucratic reforms are being carried out at an unprecedented pace. Financial powers are delegated and bureaucracy reduced.

Core infrastructure spending includes the first locally designed and built Vande Bharat Express, which will sprint at a lightning-fast speed of 160 km/h, two new freight corridors between Mumbai and Delhi and between Punjab and West Bengal, and electrified rail tracks for faster moving freight, Add 10,000 kilometers of highways per year, increase the number of airports, increase power generation and broadband internet penetration.

India has added 50,000 km of National Highway in the last eight years, double the previous eight years. The length of the rural road network has increased from 3,81,000 km in 2014 to 7,29,000 km in 2023.

In the same period, the number of airports has doubled to 148, while domestic passengers have increased from 60 million in 2013 to a peak of 141 million in 2019 before the outbreak of the pandemic. The number of passengers is expected to increase to 400 million in the next 10 years.

While power generation capacity has grown by 22 percent, renewable energy capacity has nearly doubled in the five years to 2022, with the country being the fourth-largest installed renewable energy capacity in the world.

The number of broadband connections increased from 61 million in 2014 to 816 million last year. A mobile payment system launched in 2016 accounts for more than half of digital transactions.

“Modi’s confidence in the transformative power of the new transport infrastructure is well-judged,” said The Economist.

It is a prerequisite for the high growth that India is aiming for. It is a rising tide that will lift all parts of India.

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