Tuesday, February 7, 2017

Budget 2017: Impact of Increased Infrastructure Spending

Infrastructure sector is a key driver for the Indian economy. Infrastructure sector includes power, bridges, dams, roads, rural/urban infrastructure development and also Affordable Real Estate (Housing). As evident in the 2017 budget speech by our FinMin, this sector enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country.

In my previous broad review article, I had mentioned that this Infrastructure spending would be beneficial to our country and our economy but I did not get into details. So, here we go…

Just How Much got Allotted toward the Infrastructure Space in Budget 2017?

Total Allocation for Infrastructure in this year’s budget stands at a record 3,96,135 crores. This is significantly higher than what was allocated last year and like I said before, is expected to give a boost to our nation’s Infrastructure growth.

Effects of Increased Infrastructure Spending

You may be wondering, what the benefits of this Increased Spending would be. An Increased Road & Rail coverage network is just the tip of the iceberg. The Infrastructure Sector plays a vital role in the development of the country and this increased spending is going to have a wide range of benefits.

Better Global Recognition

In August 2016, India jumped 19 places in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries. With this increased spending on the various segments of our Infra sector, we can be optimistic of further favourable jumps by India in this LPI for 2017.

Increased Job Creation Across the Country

When a country invests in improving its Infrastructure, it can help create both Direct and Indirect job opportunities in the areas where the projects are being executed. You need manpower to build whatever it is you are building like roads, railway lines etc which creates direct job opportunities for people. And these Infra projects are going to need raw materials which will result in indirect job creation in the corresponding manufacturing areas.

Housing for All by 2022 – A Key Driver in Job Creation

The Prime Minister recently made public the Government’s intention to build approx. 6 crore houses as part of two housing schemes: The Pradhan Mantri Gram Awas Yojana (for Rural areas ) and Pradhan Mantri Awas Yojana (for Urban areas). A paper jointly released by KPMG and NAREDCO (National Real Estate Development Council) suggested that with our increasing Urbanization, there may be a further shortfall of about 5 crore homes by 2022.

Apart from these Affordable Housing projects, the Government had indicated in 2016 that it is planning to build more than 100 Smart cities across the country which means, the growth of the Real Estate & construction side of our Economy is expected to be very strong. Rs. 23,000 crores has been set aside for the Pradhan Mantri Awas Yojana in this years Budget.

Experts predict that the Real Estate and Construction Sector is expected to generate about 7.5 crore jobs by 2022.

Improved Connectivity via Roads

Roads have been a focus area for the government to revive our Infrastructure sector. The Finance Minister mentioned that the construction of roads is progressing at a brisk pace of 133 KM per day. This year Rs. 19,000 crores have been set aside just for improvement of Rural roads as part of the Pradhan Mantri Gram Sadak Yojana. Rs. 67,000 crores have been set aside as part of National Highway Development in this budget.

With the upcoming projects lined up and the government expected to spend such astonishing amounts to improve road connectivity, the Roads Sector Alone is expected to generate approx. 50 lakh jobs across India by 2022. Not to mention the jobs that could potentially get created through the allied manufacturing sector that supports the laying of these roads.

Improved Rail Connectivity & Infrastructure

This year Railways received a budget allocation of 1.31 lakh crores of which Rs. 55,000 crore is coming from the Government. A Multitude of projects have been announced this year. They key highlights that would help boost job creation and our economy include the sanctioning of about 3500 kms of new railway lines. At least 25 new stations would be developed and 500 stations would be enhanced to support the differently abled by fitting elevators & escalators. 7000 stations have been identified to be fit with Solar Power and there is an ambitious target to fit Bio Toilets in all coaches by 2019.

Though the amounts aren’t as high as what Railways or Roads have received, the Government has set aside budget to modernize our Ports as well as to build new Airports in Tier II Cities.

Investing in Renewable Energy & Power Generation

Solar Energy has the potential to create huge job opportunities in India. The Installed capacity in Solar power generation has grown at about 151% CAGR in the last 4 years. Our capacity was a mere 35 MW in FY11 and has gone up to over 8700 MW in FY 17.

Last year, the Government set itself an ambitious plan of ramping up our Solar capacity to 100,000 MW by 2022. This year, 1.26 lakh crores have been set aside for Energy Production based investments across the country. This year’s target for Renewable Energy projects is 20,000 MW.
Furthermore, the Government has already set out an ambitious plan of ramping up this capacity to 100,000 MW of Solar capacity and 60,000 MW of Wind Energy by 2022 which will require an investment of about 5 lakh crores in the next 5 years. According to experts, this sector could generate about 10 lakh additional jobs by 2022 if the Government is able to work towards reaching this goal of 100 GW (gigawatt) of Solar energy and 60 GW of wind energy.

This Installation solar panels and wind turbines will also result in strong business opportunities and job creation for those equipment manufacturers in India.

A Positive Contribution toward the Indian GDP Growth

The Infrastructure Segment (Including Real Estate) is the third largest contributor to the Indian GDP. With this Increased Spending, we can expect our Indian GDP to get a strong contribution this year as well. With the government’s move to restrict all Cash Transactions above 3 lakhs, more and more real estate transactions are expected to come into the fold of the formal economy which again would contribute positively toward our Economy and Tax revenue.

What do you think about the Budget allocation toward the Infrastructure Sector and how it would benefit the nation? Sound off in the Comments section…

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