In classical economics, it is presumed that infrastructure spending will have a beneficial effect on investments in the economy. This would generate demand for inputs like coal, cement, steel, and heavy machinery and create several new jobs both directly and indirectly, increasing income for the poor. Thus, testifying to the “trickle-down” effect prophesied by neoliberal economics. A World Bank study (Auguste Kouame, November, 2022) estimates that every rupee spent on building roads generates an additional economic value of Rs 7. At the same time, the report says India will need to invest840 billion dollar over the next 15 years—or an average of 55 billion dollar per annum into urban infrastructure. Infrastructure projects, for example, like the construction of roads, highways to improve the transport of minerals and goods and would creates table consumer demand, prompting entrepreneurs to invest in building production capacities. However, the private industries are not coming forward to invest and the promised benefits are not reaching the poor. This needs to be examined thoroughly.

Despite huge budget allocations and generous tax incentives for higher capital expenditure, private industries have failed to invest and kickstart the economy. The private investment rate remains insignificant even after much advertised contribution of nearly Rs. 2.0 Lakh crore pipeline infrastructure, devised a couple of years ago. Also, the pipeline failed to boost India’s GDP growth rate. Looking at the recent data provided by the economic survey, instead of the expected results, there was only disappointment.

The chief reason has been the lack of money in people’s pockets to purchase goods and so consumer demand continues to remain low. With insignificant allocations to various employment generation programs (National rural employment guarantee scheme), food security, health, child and women welfare programmes and neglect of incentives to small-scale industries, the consumer demand for goods has declined. Of course, demand for luxury cars and residential villas is soaring that indicates the rising disparities between rich and poor. The private industry lacks the appetite to invest, and expand production capacity in absence of consumer demand. Neither a series of tax cuts and capital nor a bonanza from the central government could make the private industry invest and help rise gross capital formation.

The ratio between gross fixed capital formation to GDP is an indicator of financial performance. The ratio has dropped from 33 percent in 2014-15 to 29 percent in 2022-23. In this period, capital expenditure by the Centre (in subsequent annual budgets) has constantly risen from 1.7 per cent to 2.7 per cent of the GDP. This means while the government investments in infrastructure are insufficient, the overall GDP rate also keeps declining. This suggests that private investments have fallen at an even faster pace than the investment rate (Economic Survey, 2023). In other words, increased spending on building infrastructure has had no positive impact on investments in the present scenario.

A couple of days back, PM Modi inaugurated the first phase of 12 billion worth of Mumbai- Delhi highway. Similar to our ambitious highway network construction, in the USA at the beginning of the 1900s big highways crisscrossing the nation was constructed to boost automobile production. This resulted in the downgrading of rail lines, and public transport and the loss of millions of green forestlands, fauna, and flora.

Infrastructure spending is supposed to have a mega multiplier effect, by generating demand for inputs like coal, cement, steel, and heavy machinery. It is also supposed to create many jobs, not just directly, but also indirectly in industries that feed infrastructure projects. Finally, infrastructure spending is supposed to have a beneficial effect on investments in the economy.

Mainstream economists say that infrastructure spending, such as the construction of highways, creates jobs also in other industries, which provide inputs and raw materials, such as cement, steel, and mining. But between 2016-17 and 2021-22, there has been a 62.0 percent decline in jobs in the cement industry, employment in the steel industry also has dropped by 28 per cent and in mining too the same story got repeated. Through the adoption of modern automation in production, job cuts are there, but the chief reason could be the lack of desire to expand production capacity with industry. The same is seen with the fall in the employment of manual labourers in road construction.

Government expenditure on infrastructure is a great captive source of revenue for big infrastructure players, cement, and steel manufacturers, above all contractors who have no need to cater to the general consumers. It also gives India’s rich and foreign investors, who fly from the swanky airports and drive down the smooth multi-lane highways to promote ease of doing business and a feeling of being in the first world.

Government should increase allocations to power production, and stimulate the growth of small and medium-scale industries to promote jobs. Also, focus more on training skilled manpower to make them employable so as to make use of the higher youth segment in demographic terms. More allocations to health, education, child and women nutrition, and expansion of primary health care in slums and villages would certainly help to attain human development goals and accelerate GDP growth in real terms.

Why do successive governments continue to not fund real people-oriented programmes sincerely? The answer lies in the neoliberal framework which economic policy had followed (strictly obeying World Bank’s neoliberal, imperialist dictates) in India for the past three decades. It is oriented towards foreign capital and domestic big business. The objective is to provide Indian crony capitalists and foreign investors with huge capital funds while keeping crores of poor in absolute poverty. Huge capital outlays in the budget failed to kick-start the economy. There is every need to divert budgetary allocations to improve the human development index and promote demand for goods. True to chosen neoliberal agenda present government’s budget favours superrich over the teeming millions of poor India. (IPA Service)