India maintains record infrastructure spend at 11.11 trillion rupees

India's federal government said on Tuesday that it will spend a record 11.11 trillion rupees ($132.85 billion) on infrastructure in the financial year ending March 2025 to support growth and create more jobs in the world's most populous country.

The spending plan was unchanged from the interim budget presented in February before the national elections.

"This would be 3.4% of our GDP (gross domestic product)," Finance Minister Nirmala Sitharaman said while presenting the federal budget.

For the current fiscal, the government has made an outlay of 1.5 trillion rupees for long-term loans to states for infrastructure.

Why it's Important

The government has doubled spending on infrastructure over the past three years as a way to boost the economy. As a percentage of GDP, longer-term capital expenditure has risen to 3.4% in the current year from 1.7% in 2019-20.

Infrastructure spending, which generates demand across sectors from cement to steel and creates jobs, has a strong multiplier effect on the economy, economists say.

India's economy expanded at a faster-than-expected pace of 7.8% in the March quarter, but Prime Minister Narendra Modi has faced criticism from analysts and political rivals for not creating enough jobs. This, in turn, has weighed on consumption, which forms 60% of India's GDP, and held back private investment.

Market Reaction

No change in the allocation for capital spending led to a 1.4% fall in the stocks of capital goods companies, with Larsen & Toubro down 4% and Siemens down 2.7%.