No More Idle Shovels: Catalyzing India’s Next Big Infrastructure Leap
- TerraCogent Staff
- Feb 22
- 6 min read
In the Union Budget 2025–26, the Indian government ran into an unusual constraint. The central government’s capital expenditure (capex) was budgeted at Rs. 11.21 trillion, or 3.1% of GDP. Although this signified an increase of over 10.1% from the Rs. 10.18 trillion actually spent in the previous financial year, it was only about Rs. 100 billion more than what had been budgeted the year before.
Over the last several years, the central government has been pump-priming the economy: first to combat sluggish growth between 2017 and 2020, and later to help the country recover from the shock of the pandemic in 2020–2021. An economy reliant on government-led aggregate demand for growth was suddenly confronted with a relatively flat capex allocation, despite continued ambitions for robust economic expansion.
This paradox arises because the government now wants greater private sector investment and capex participation. The events of the 2024–25 financial year revealed a possible long-term shift in government priorities, influenced by the realities of public finance.
Unintended Fiscal and Credit Tightening in 2024
The year 2024 was an election year for India’s Lok Sabha. Traditionally, the government presents an “interim” budget on 1 February, followed by a full budget around July for the financial year that begins on 1 April. During the election season, the Election Commission of India imposes a model code of conduct about four weeks before voting starts, at which point the bureaucracy effectively reports to the Commission rather than the incumbent government.
In 2024, this system’s vulnerabilities became starkly evident. With April, May, and part of June under the model code, there was no early push for government capex. The full budget was presented only in the third week of July, coinciding with the monsoon months. The result? No substantial ground-level impact of government capex.
The central government used only 29% of its full-year fiscal deficit in the first half of the 2024–25 financial year. Typically, this figure is about 62% by midyear, aided by the 1 February budget that allows for front-loading of projects 1 April onwards. This effectively led to a 33% fiscal tightening. With a full-year fiscal deficit target of 4.9% of GDP, just 1.6% of that deficit was utilized in six months. The resulting exogenous shock weighed heavily on the second quarter.
Despite an uptick in project expenditures post-monsoon, the government ultimately fell short of its budgeted capex by approximately Rs. 1 trillion. This shortfall highlighted a deeper, structural issue: the central government is losing its ability to spend meaningfully on capital assets as existing projects reach completion.
Capital Expenditure Ambitions
When the Covid-19 pandemic began, India unveiled the National Infrastructure Pipeline (NIP) to sustain economic momentum and develop productive assets. The plan envisioned around Rs. 110 trillion in capex over five years—roughly Rs. 22 trillion annually. Of this, about Rs. 11–12 trillion would come from the central government, Rs. 3–4 trillion from state-owned enterprises, and the rest from the private sector.
This was a radical shift in ambition. In 2014, when the Modi government came to power, central government capex was around Rs. 2 trillion a year. Consequently, announcing a yearly target of Rs. 22 trillion drew ridicule from skeptics who claimed India lacked sufficient “shovel-ready” projects—regardless of its funding ability.
Fast-forward to 2025: the focus has moved to new ideas.
In 2014, India struggled to develop infrastructure because it lacked financial resources.
By 2020, India had funds but still fell short on execution capacity.
By 2025, the government believes there is both money and the proven ability to deploy it. The missing piece now is a pipeline of new ideas.
This evolution underscores India’s changing view on which productive assets warrant government investment.
The Ideas Whiteboard
It is an opportune time for the government to explore fresh, ambitious, and practical ideas that keep capex channels open while also planning for a 5–10-year horizon. Such a roadmap would mitigate disruptions from election-year dynamics.
1. Full Throttle on Urbanization
India’s economic growth will largely stem from rapid urbanization—an accepted fact across political and ideological lines. But should our cities look the same at $3,000 per capita as they would at $15,000 per capita? So far, Indian cities have expanded in response to economic pressures, not as part of a cohesive plan. As population growth stabilizes and economic expansion shifts from labor inputs to total factor productivity, cities must become truly livable, matching global standards. Attracting the best global talent over the next few decades requires foresight.Politically, urban India remains devoted to Prime Minister Narendra Modi, who embodies both national pride and a vision of India’s global significance. Urban areas continue to be the BJP’s stronghold, even where the party is otherwise weak (e.g., West Bengal, Tamil Nadu, Kerala, Punjab).
The central government could prioritize improvements across the top 50 Indian cities:
100% sewage treatment using modern technologies.
Fully revamped city roads, emphasizing durability over lowest-bid (L1) contracts.
Realistic pollution targets, such as keeping 100+ days in a year with PM2.5 below 50.
A network of deep tunnels to manage floodwater and prevent annual inundations.
At least 300 km of metro lines per city, connecting suburbs and core areas.
These measures could be deployed centrally for 25 cities over 10 years funded fully by the central government, with states required to replicate this blueprint for another 25, creating 50 model cities. World-class Indian cities would be a monumental legacy for India's Prime Minister Narendra Modi, but it would require political will, regulatory reform, and the fortitude to challenge center–state dynamics. TerraCogent Insights will soon publish a detailed feature on potential urbanization strategies.
2. Railways Modernization
Railways still offer ample scope for both capex and new ideas, and private sector involvement here is minimal, unlike in roads, ports, and airports. Although the Railway Board’s centralized execution approach is often prone to delays and inefficiencies, this sector warrants further investment:
Rapid transport corridors of 50–100 km for the top 15 urban clusters, seamlessly integrated with city metro networks. This can build on the NCR’s Namo Bharat concept and be managed by the Ministry of Housing and Urban Affairs rather than the Ministry of Railways.
A high-speed (300 km/h) and semi-high-speed (160 km/h) network spanning 20,000 km, introducing a parallel premium service model while continuing to serve mass transit needs.
Standardization of Vande Bharat (including sleeper versions) as the backbone of passenger rail services nationwide.
Expanded Dedicated Freight Corridors (DFCs) linking east–west, east coast, and west–south routes, boosting railway revenues and alleviating passenger traffic congestion.
3. Promoting Indian Research and Development
India lags significantly in scientific R&D relative to its peer nations. The private sector shares responsibility, often prioritizing immediate returns on capital over riskier, long-term research projects. While India is not short on talent, it lacks intent.The government could create a special 10-year R&D capitalization framework:
Allow companies to treat R&D spending as a capital asset, depreciating it over a set period.
Match a portion of these amortized costs with government grants, especially in sectors such as defense, biotechnology, renewable energy, battery technology, and transportation equipment.
This arrangement—akin to an “R&D-Linked Incentive” program—would need legislative support and a fixed expiration date but could spur significant private R&D investment.
4. Hundred World-Class Museums
To boost tourism, India must invest in first-rate museums. Recent efforts—such as the PM Sangrahalaya in Delhi, the Yuge Yugeen Bharat National Museum, the Vadnagar Archaeological Experience Museum, and the National Maritime Heritage Complex in Lothal—address this gap. However, India’s cultural and historical breadth deserves far broader representation. When executed well, museums can blend tradition with technology, appealing to domestic and international audiences alike. The government might also encourage the top 50 cities and leading Indian corporations to develop their own museums, incentivized by matching funds for the former and tax relief for the latter.
5. Developing Heritage Sites
Hampi, Raigad Fort, and Udayalur village have at least one trait in common: each is tied to empires that defined India—Vijayanagara, the Hindavi Swarajya of Chhatrapati Shivaji Maharaj, and the Chola dynasty. These locations remain under-resourced, difficult to reach, and largely neglected compared to their historical significance.The central government could identify 25–50 heritage sites of national importance for comprehensive development. While tourism cannot thrive in isolation from the local population’s living conditions, integrating this initiative with urban and transport improvements could unlock substantial tourism potential.
Criticism of the above Ideas
Two main criticisms could arise:
1. Lower GDP Multiplier
Some proposals—like museums or heritage sites—may yield lower near-term multipliers for GDP and job creation compared to roads or ports. However, a comprehensive national power perspective suggests that investments in research, culture, and tourism can offer non-linear long-term benefits. These returns might materialize more slowly but often carry broader diplomatic, cultural, and societal payoffs.
2. Reduced Gross Fixed Capital Formation (GFCF)
On a rupee-to-rupee basis, upgrading a heritage site may add less to GFCF than building a multicity road or a railroad. Yet in the current scenario, traditional capex avenues may no longer scale. Enhanced livability, lower pollution, and improved civic infrastructure can yield substantial socio-economic gains—many of which defy conventional ROI calculations.
Dig Deeper, Dream Bigger
India’s economic trajectory is inherently sui generis. While it benefits from global lessons, its challenges are unique to its scale and administrative evolution. Consequently, solutions must also reflect an original, resolute approach. The government still has myriad opportunities to make India more livable—securing a prosperous future without discarding a proud past.
Comments