Finance Minister Nirmala Sitharaman did not offer them much to cheer about. But the good news is that the capital expenditure proposed for FY25 has increased by 17%, at ₹11.11 trillion.
The details aren’t that exciting, though.
The allocation for railways at ₹2.5 trillion is only marginally higher than the ₹2,400 billion announced in the Union Budget of the previous year. The finance minister proposed the implementation of three major economic rail corridor programs – energy, mineral and cement corridors; port connectivity corridors; and corridors of high traffic density.
These projects have been identified under the PM Gati Shakti scheme to enable multi-modal connectivity and are expected to improve logistics efficiency and reduce cost. Shares of key railway companies such as Texmaco Rail and Engineering Ltd, and Titagarh Rail Systems Ltd were largely unchanged on Thursday.
The government proposed to set aside ₹2.7 trillion for road transport and highways, but again, this is only marginally higher than the ₹2.6 trillion allocated in the Union Budget for FY24.
“Apart from national highways, which witnessed softening of project awards due to FY24 being a pre-election year and high NHAI debt levels, other areas such as transmission projects, addition of renewable capacity, witnessed strong bidding activities,” said Priyankar Biswas, India analyst for infrastructure, logistics, capital goods and metals and mining at BNP Paribas.
The budget allocation for the National Highways Authority of India rises by only 0.6% (based on the budget estimate for FY25 against the revised estimate for FY24), which reinforces the view that high NHAI debt makes it difficult to increase allocation for highways, Biswas added. .
On the bright side, defense allocation was increased by more than 9% to ₹1.7 trillion. This is expected to bode well for companies like Bharat Electronics Ltd.
To fuel growth and maintain its position as Asia’s fastest growing economy, India’s push towards infrastructure spending is important. An increase in infrastructure investment provides a critical boost to the potential growth of the economy, as it is expected to create a ripple effect.
Amit Anwani, an analyst at Prabhudas Lilladher, sees developments in the defence, railways and energy sectors benefiting various industries, with a strong possibility of positive spillover effects to other sectors such as cables and equipment.
No wonder then that in the past year shares of Larsen & Toubro Ltd, Bharat Heavy Electricals Ltd, ABB India Ltd, Siemens Ltd, Bharat Electronics Ltd, Thermax Ltd, Praj Industries Ltd, Texmaco Rail, Titagarh Rail and BEML Ltd have risen by as much as much as 44-41%.
This optimism stems from the fact that the government increased its infrastructure capital at a difficult time when private sector spending remained low. In its December quarter (Q3FY24) earnings conference call, Larsen & Toubro’s management said they saw green shoots in private capex.
“Over the years, India Inc’s balance sheet has been on the comeback trail with an improvement in the ability of borrowers to borrow and lenders to lend,” explained Nitin Raheja, managing director of Julius Baer India. This, along with earlier government initiatives, has kept the capex momentum going, he added.
Meanwhile, economists point out that the increase in capital expenditure is lower than the current seen in previous years. However, given the high base, this is not entirely surprising.
According to Sonal Varma, managing director, chief economist-India and Asia ex-Japan, Nomura, capital is expected to rise 16.9% y-o-y in FY25 against 28.4% in FY24, which is still shifting the capex-to-GDP ratio. ratio to 3.4% in FY25 from 3.2% in FY24.
“In recent years, private capital has been weak, so public capital has been a driving force. Now with private income likely to rise, the government is slowly pulling back,” said Varma.