Ratings agency ICRA says the government’s continued focus on capital investments would drive investments in infrastructure development and the construction sector. In her Budget speech for FY23-24, Finance Minister Nirmala Sitharaman increased the capital investment outlay for 2023-24 by 33% to ₹10 lakh crore, which will be 3.3% of the country’s GDP. 

"The Union Budget has provided a much larger-than-expected boost to growth-inducing capital spending, while at the same time managing a fair degree of fiscal consolidation. The Budget proposals are likely to enhance business, rural and tax-payer sentiment and consolidate India's growth prospects amidst a gloomy global setting. With the Government’s borrowings similar to the market expectations, the bond yields are likely to stabilise, which would also support the private sector capex plans," said Ramnath Krishnan, managing director and chief executive officer, ICRA. 

The report said that roadways and railways will get a dominant share in investment, with an increase in capital expenditure. Sitharaman had announced that the railway sector will get an outlay of ₹2.4 lakh crore in order to expand infrastructure in the coming years. This is the highest-ever outlay received by the Railways in the Union Budget. The capital allocation to the highway ministry for 2023-24 in the union budget stood at ₹2,58,605 crore, which is 38% higher than the allocation of ₹1,87,744 crore in the previous union budget. Both ministries account for almost half of the total capital expenditure estimate of ₹10 lakh crore in the budget.

"Roads and Railways will continue to get the dominant share, while allocation has also been increased for urban infra and water supply segments. Support to NHAI has been kept higher while continuing with nil incremental borrowing in FY2024," the report said. 

"Increased capital outlay by the Central Government (including Railways) would boost demand for various engineering equipment and create a multiplier effect, bolstering order books of companies," it added.

According to ICRA, an increase in the capex support to ₹10.3 lakh crore to states in the form of an interest-free loan remains positive for state-funded infrastructure projects like roads, irrigation, and water supply projects. "However, only 76% of the FY2023 BE (budget estimates) has been retained as per FY2023 RE(revised estimates). Further, the inclusion of other purposes like scrapping of old vehicles, urban local bodies reforms, etc, could dilute the capex deployment to an extent," it said. 

An increase in capex would also strengthen steel demand in the country as per the report. "The Union Budget's strong push for infrastructure-led growth in the country, with the increased capital outlay for infrastructure projects and interest-free capex loans to states, remains positive for steel demand," it said. 

As per the report, an increase in capital expenditure is expected to support income for farm households and thereby support demand for rural housing, which is a significant contributor (of around 30%) to the overall cement demand. The finance minister has allocated ₹79,600 crore in FY2024 for Pradhan Mantri Awas Yojana in the budget. 

"Improved access to housing in low to mid-income segments under PMAY and the continued focus on PMAY allocation is positive for the cement sector. The infrastructure sector accounts for 20-25% of the total cement demand. The increase in budgetary allocation underscores the focus of the Government on the infrastructure sector," the report said. 

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