Labourers work at the construction site of a monorail project in Mumbai on October 31, 2014. (Reuters/Shailesh Andrade/Files)
Labourers work at the construction site of a monorail project in Mumbai on October 31, 2014. (Reuters/Shailesh Andrade/Files)

Prime Minister Narendra Modi’s government has begun a splurge on road and rail building that analysts say could remove doubts over whether economic growth in India really is overtaking China.

Having roughly doubled spending allocations for roads and bridges in fiscal 2015/16, and raised the rail budget by a third, Modi is banking on India going faster.

“They have acknowledged that infrastructure is the big elephant in the room,” said Vinayak Chatterjee, head of infrastructure services company Feedback Infra.

“Once these measures are implemented, the elephant would start dancing, and with it the overall economy.”

Modi’s chief economic advisor, Arvind Subramanian, reckons growth could increase by more than one percentage point this year provided ministries don’t underspend, though the central bank saw it adding just half a point.

Data released on Friday showed the economy grew 7.5 percent in the quarter ending in March, easily outpacing China. Many economists suspect, however, that the government statisticians’ new way of counting GDP overstates how well India is doing.

Those worries might fade if Subramanian is right about the impact infrastructure spending will have on India’s under-achieving economy.

Success rests on whether ministries spend the extra $11 billion they were allocated for infrastructure this fiscal year. They got off to a fast start in April, spending $6 billion of the $38 billion capital expenditure budget for 2015/16.


The government has prioritised unblocking infrastructure projects that had gathered dust because of either an obstructive bureaucracy, a lack of private sector investment, or in some cases public interest litigation.

Weighed down with heavy debt, and having posted their worst results in five years, big Indian corporates are in little rush to make fresh investments, while public sector banks may require recapitalisation before they are ready to lend the sums needed.

That has made the government step up to the plate.

Take Delhi’s Eastern Peripheral Expressway, for example.

Part of a six-lane ring-road for the capital, the project was first mooted nine years ago but failed to attract private bidders. Unwilling to wait any longer, the road ministry intends spending almost $1 billion building the 135 kilometre loop.

Last month, the cabinet approved a policy that will provide private developers with a $470 million bailout in order to complete 16 highways.

The government has also put $3 billion of seed capital into a new infrastructure fund, with the hope of attracting up to $30 billion of private money.

Some rules have been eased for the private sector, and financially stressed companies are now allowed to exit projects.

And in future, public tenders will only be launched after all approvals have been secured – addressing a major reason why so many projects stalled.

As a result the government hopes road building will accelerate to 30 km a day by the end of next year from 12 km at present, as it plans to award projects for 10,000 km of road this year, up 25 percent from a year earlier.

Some bureaucrats suspect that the government has underestimated how much money is needed. Planned road projects alone will cost $17 billion this year compared with a budget allocation of about $7 billion. To cover most of the gap, the road ministry plans to raise a $7 billion loan.

“We don’t have enough money to build all these roads,” Rohit Kumar Singh, a mid-level bureaucrat at the ministry, told Reuters. “We need to leverage private sector funding.”

A clear, consistent policy on tolls needs to be put in place for the private sector to become more active, Virendra Mhaiskar, managing director of IRB Infrastructure Developers Ltd, one of India’s largest road builders, told Reuters.

“You have to create an environment where investors and lenders can make a return,” Mhaiskar said.