Multi billion Indian infra funds help only Super Rich and not poor

vande bharat train

 This year’s Indian Budget has allocated  Rs 10 lakh crore (121.0 Billion US $) as capital expenditure for  building huge infrastructure during 2023-24. Nearly one fourth of the capital outlay will be spent on constructing new roads and highways and another quarter  to Indian Railways for  running new high speed trains (like Vande Bharat), laying new rail tracks and  10 percent to state governments as loans for spending on infrastructure projects. Total budget allocations  amount to nearly 3 percent of GDP for infrastructure building. The central question is – does the huge public expenditure  kick starts economy, generates new jobs and promotes demand as promised by Finance minister or this again  yet another neoliberal economic bonanza to benefit the super rich?

In classical  economics it is presumed that Infrastructure spending  will have  beneficial effect on investments to economy. This would  generate demand for inputs like coal, cement, steel and heavy machinery and creation of several new jobs  both  directly and  indirectly,  increasing  income to poor. Thus  testifying  the “ Trickle Down “ effect prophesised  by neoliberal economics. A World Bank study (Auguste Kouamé, Nov. 2022) estimates that every one rupee spent on building roads generates an additional Rs 7 in economic value.  Same time the report says  India will need to invest $840 billion over the next 15 years—or an average of $55 billion per annum into urban infrastructure . Infrastructure projects  for example, construction of roads, highways  facilitating improvement in transport of  minerals and goods would   create  a stable  consumer demand, prompting  entrepreneurs to take risks and invest in building capacities. However, this principle in real world  is not working. Private industry is not coming forward to invest and the promised  benefits are not reaching poor and  this  needs to be  examined thoroughly.

Despite  made huge budget allocations for  high capital expenditure, they  failed to promote private investments and kick start the economy. The private investment rate is insignificant. Similar to much advertised nearly  Rs. 2.0 Lakh crore  Infrastructure Pipeline, devised a coupl of years ago.  Also did not boost India’s GDP growth rate.  Looking at the  recent data provided by  Economic Survey, during the last one decade the expected results were quite disappointing not achieved.

Chief reason being consumer demand remaining low due to lack of money in people’s pockets.  With  insignificant allocations to various  employment generation (National rural employment  scheme),  food security, education, health, child and women welfare programmes and neglect of  incentives to small scale industry the  consumer demand for goods remained low. Of course, demand of luxury cars and residential villas is  soaring, which indicates  the rising disparities between rich and poor. In absence of consumer  demand, the private industry lacks appetite to invest, expand production capacity. Neither a series of  tax cuts and capital  bonanza offered to  private  industry  by   Central government  could not make private industry to  invest and  rise gross Capital Formation.

The ratio  between Gross Fixed Capital Formation to GDP is an indicator for  financial  performance.  The ratio, has actually dropped from 33 per cent in 2014-15 to 29 per cent in 2022-23. In this period, capital expenditure by the Centre (in subsequent annual budget s) constantly  rose from 1.7 per cent to 2.7 per cent of the GDP. This means while the government’s investments in infrastructure are  soaring, the overall GDP rate is 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  had no positive impact on investments in present scenario and  did not kick start the economy.

Similar to ambitious highway network construction, in USA too in the beginning of 1900’s big high ways criss crossing the nation were constructed to  boost automobile production. This resulted in downgrading rail networks and  loss of  vast  green forest lands, fauna and flora.

Infrastructure spending is also 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 multiplier effect but in reality it is reverse.

 Low Job Creation

Mainstream economists say  that infrastructure spending, such as construction of highways creates jobs also in other industries, which  provide inputs and raw material, 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 steel industry  has dropped by 10 per cent and mining jobs have gone down by 28 per cent. Though  adoption of modern automation technology in production is there, the chief reason  foe low level of job creation being lack of desire to expand  production capacity with private industry. Similar  low job losses are seen with employment of manual labourers in  road construction.

Loss of Jobs in Building Highways and Speed Trains, 2016-23; 

Investment, sector  Spent  budgetary funds
Spending on Roadways construction 84 % increase ( 2016- 22)
  Loss of Jobs, in %
 Road construction Job Growth -6 %
Cement industry -62%
Steel industry -28%
Mining -10%

(CMIE, India, 2022; Aunindo Chakravarthy, Feb. 2023).

Neoliberal Agenda

Government expenditure in 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 consumer. 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 have a feeling of being in the first world.

Instead, Government  should increase allocations to  power  production,  stimulate growth in small and medium scale industry to promote jobs. And also  focus more on  training  skilled man power to make  them employable so as to make use of  the demographic advantage of high youth segment in the population. More allocations to health, education, child and women nutrition, 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 sincerely  the real world peoples  programmes ? The answer lies in the neoliberal framework which economic policy  followed (strictly  following World Bank’s  neoliberal imperialist dictates) by India for the past three decades. It is oriented to attract and benefit foreign and domestic big business. The objective is to provide Indian crony capitalists  and foreign investors with  huge public funds, while  keeping  crores of poor in absolute poverty.  Huge Capital outlays in this year’s budget will again fail to kick start the economy. There is every need to  divert budgetary allocations to improve human development index and promote demand for goods.  True  to neoliberal agenda  present  government’s budget favours Super rich over the teeming millions of poor Indians.

Dr. Soma Marla,Principal Scientist,ICAR,Delhi

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