Budget should reemphasise infrastructure, push private participation

Revive PPPs, enable group taxation for infra SPVs, fund high-speed rail separately, and prioritise urban projects to reignite growth, argues infra expert

Infrastructure spending must, once again, be viewed as the turbocharger for economic growth because of its high multiplier effect. Every ₹1 invested in infrastructure is believed to generate ₹3 of economic output. This alone underscores why public capital expenditure in infrastructure remains crucial. Thus, the relative “de-emphasis” of infra outlays growth in the last Budget should be reversed. This is crucial also in the current environment where private investors in greenfield infrastructure are still hesitant.

 

The macroeconomic framework for determining infrastructure outlays is well-established. The underlying assumption is that gross capital formation in infrastructure (GCFI) should be around 7 per cent of gross domestic product (GDP) as a national intent. Within that, roughly 3.5 per cent typically comes from the Union Budget, while the remaining 3.5 per cent is contributed by states, private capital, and EBR (extra-budgetary resources including public-sector undertakings). Using this framework, infra outlays in the forthcoming Budget should be ₹14 trillion, as can be seen in the table.

 

The next stage of growth requires stronger private participation. Aggressively reviving the public-private partnership (PPP) ecosystem is central to this shift. The PPP unit, under the Department of Economic Affairs (DEA), must now start demonstrating deliveries, including crafting enabling frameworks for much-needed social infrastructure. This includes health care, education, tourism, housing, sanitation, water, skilling, digital projects and agri-infrastructure. The government’s role should focus on preparing sector-specific model concession agreements, and de-risking mechanisms such as viability gap funding (VGF). States are also encouraged to do so and should seek support from the India Infrastructure Project Development Fund (IIPDF) that was announced in the last Budget.

 

Tax policy also needs to encourage private investment. Any medium-sized private infra player will have 20-30 special purpose vehicles (SPVs), while large players have to contend with over 50 of them at any point of time. A group taxation regime — allowing firms to “consolidate” losses and profits across group-owned SPVs would stabilise cash flows, strengthen credit profiles, and reduce borrowing costs. This has been a long-standing, and rational demand.

 

A crucial aspect for coming years is to focus on city-level infrastructure such as mobility, water and sewage systems, climate-resilient infrastructure, and affordable housing. The Urban Challenge Fund (UCF), announced in the last Union Budget is a promising step, and the UCF should start demonstrating action on the ground. Moreover, with traffic logjams becoming the bugbear of urban commuters, the Union government should stop funding any urban transportation projects till the concerned city fully implements the mandated UMTA (Unified Metropolitan Transport Authority).

 

Additionally, land-value capture (LVC) should be mandated to be a regular financing instrument, thereby ensuring that some portion of total infrastructure funding comes through tools such as betterment levies, development rights, or corridor value capture. For too long, appreciating land values accruing through public expenditure have just been allowed to be “captured” by a select set of brokers, bureaucrats, and politicians.

 

A dedicated budget for high-speed rail (HSR), separate from railways, is essential because it represents a new class of infrastructure that cannot be managed within the framework of the conventional Railways setup. HSR demands its own approach to technology, route planning, and land acquisition, while also requiring long-term financial commitment. It can help accelerate regional connectivity, linking tier-II and tier-III cities to major economic hubs, and unlock new corridors of growth. HSR should now replace the traditional roads and highways sector for receiving the highest amount of public funding. It should have a standalone allocation distinct from the traditional railways outlay along with fostering a modern institutional set-up distinct from the traditionalist Railway Board. 

 

Upgrading the appropriate definition of infrastructure is also important going forward — with many sectors clamouring to be declared as “infrastructure.” The classification of infrastructure embraces carriage, not content. Thus, a port qualifies as infrastructure, whereas ships do not (and certainly not shipbuilding — which has recently been given infrastructure status). The revision of the list of approved infrastructure areas is long-pending with the DEA and needs to be expedited. The addition of newer, professionally correct sectors will spur growth.

 

The 2026-27 Budget must once again signal that infrastructure remains the foremost priority of the Indian growth model.

The author is an infrastructure expert. He is also the founder & managing trustee of The Infravision Foundation. Research inputs from Priyanka Bains.