The Indian government is shifting its infrastructure focus towards the railway sector, planning a potential increase in budgetary allocation despite overall spending pressures. Experts suggest road and highway spending, which received INR 2.78 trillion in the interim budget, has peaked. Railways are now seen as the next major investment area, aiming to reduce logistics costs to 9-10% of GDP by investing in infrastructure such as wagons, coaches, signalling systems, new lines, and high-speed trains. Improved safety measures, including the Kavach system, and enhanced passenger amenities are also priorities. Funding strategies are shifting towards increased Gross Budgetary Support (GBS), bolstered by a record RBI dividend of INR 2.11 trillion, allowing balanced investment in both social programs and infrastructure.
The Indian government is signalling a shift in its infrastructure focus, prioritising investments in the railway sector with a potential increase in budgetary allocation for the upcoming budget. This comes despite pressures to slow spending on infrastructure projects overall.
Experts believe that road and highway construction spending, which received a high allocation of INR 2.78 trillion in the interim budget, is nearing its peak. Railways, on the other hand, are seen as the next big investment area for infrastructure development. This increased focus on railways aims to achieve several key goals.
Firstly, the government aims to reduce logistics costs, a crucial factor in boosting the overall economy. Investments will target various aspects of railway infrastructure, including wagons, coaches, signalling systems, new lines, and high-speed trains. This comprehensive approach is expected to improve efficiency and reduce transportation costs, ultimately bringing logistics costs down to 9-10% of GDP.
Secondly, recent train accidents have highlighted the need for improved safety measures. The government might increase funding for the installation of advanced safety systems like the Kavach automatic train protection system, which could cost around INR 1.5 lakh per kilometre of track. Passenger amenities and comfort are also likely to receive more attention in the upcoming budget.
The government's funding strategy for railway projects is also changing. Previously, a larger share of funding came from extra-budgetary resources (EBR) of around INR 10,000 crore, such as borrowing from Indian Railway Finance Corporation (IRFC) and private investments. This approach allowed for some flexibility in project timelines. However, the upcoming budget is expected to increase the share of Gross Budgetary Support (GBS) to INR 2.6 trillion, which is direct government funding. This shift indicates a focus on faster project completion.
The Reserve Bank of India's (RBI) recent announcement of a record-breaking dividend of INR 2.11 trillion to the government provides additional resources for the budget. This allows the government to strike a balance between boosting consumption through social programs and investing heavily in infrastructure projects like railways.
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