Modi to Spend $59 Billion to Upgrade India's Infrastructure

  • Finance Minister Arun Jaitley announced proposals for FY17-18
  • Metro rail, airport modernization among plans announced

Sonal Varma, chief India economist at Nomura, discusses what to expect from India's budget, demonetization and her outlook for the economy. She speaks to Bloomberg's Rishaad Salamat on 'Bloomberg Markets.' (Source: Bloomberg)

India announced record spending of 3.96 trillion rupees ($59 billion) to build and modernize its railways, airports and roads as Prime Minister Narendra Modi aims to upgrade the strained infrastructure in Asia’s third-largest economy.

The government will build airports -- now a near monopoly of the state -- in smaller cities in partnership with private companies, Finance Minister Arun Jaitley said while presenting the government’s budget proposals for the fiscal year starting in April. More suburban railways will come up across the country and Indian Railways, a state monopoly, will form ventures with logistics companies to provide greater connectivity to ports, he said.

Rail equipment manufacturers such as Bombardier Inc. and General Electric Co. are among companies already investing in setting up factories in India as the world’s second-most populous nation seeks to accelerate economic growth by improving infrastructure. Transport Minister Nitin Gadkari has said that the government has a target of building 42 kilometers of roads a day in a nation that stands below Namibia and Azerbaijan in the World Economic Forum’s infrastructure ranking.

Wednesday’s proposals “shall increase the demand for procurement of rolling stock, rail equipment and signaling systems,” Harsh Dhingra, chief country representative for Bombardier Transportation, said in an e-mailed statement after Jaitley announcements. Bombardier opened its first rail-coach plant in India in 2008.

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India will announce a metro rail policy, which will ensure implementation and funding, and open up job opportunities, Jaitley said. A new Metro Rail Act will facilitate greater private participation and investment in construction and operation, he said.

Indian Railways, the world’s fourth-largest, carries 23 million people daily on congested and aging tracks with roots dating back to British colonial rule. Sometimes, trains slow to a walking pace. The railways employ 1.3 million people directly.

In 2015, GE and Alstom SA won contracts worth $5.6 billion to build locomotives for the railways. GE won a $2.6 billion deal for diesel engines and will invest $200 million to build a factory under a joint venture with Indian Railways, the company said then. Alstom will make electric engines in a contract worth about $3 billion.

Here are some highlights from Jaitley’s speech on infrastructure:

* Government plans to sell shares in rail companies Indian Railway Finance Corp. and Indian Railway Catering & Tourism Corp.
* Government spending to build highways to rise 12 percent to 649 billion rupees in FY17/18
* Changes to Airports Authority of India to enable the former state-run monopoly owner of airports to monetize land holdings. Money raised to be used to upgrade airports
* Indian Railways need to take "transformative measures" to tackle competition from private players dominating other forms of transportation

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