India’s Infrastructure Growth To Boost Economy Amid Employment Challenges, Says Moody's

India’s infrastructure development will continue to benefit the country’s economy while headwinds for boosting non-agricultural employment remain strong, according to Moody's Ratings.

The continued expansion of India’s infrastructure is expected to enhance the business environment, attract private sector investments, and generate employment in higher-paying sectors.

According to a Moody's report released on Tuesday, the significant government capital spending, such as the Rs 11.1 lakh crore allocated in the final budget unveiled in early July, underscores the priority placed on infrastructure development. This investment is set to benefit various sectors by improving connectivity and reducing operational costs.

The infrastructure boom is anticipated to positively impact several related industries. The construction sector, including steel and cement producers, will see increased demand due to the development of railways, highways, ports, and airports.

Additionally, the rise in transportation needs will benefit sectors such as automotive manufacturing, airlines, and ride-hailing services.

The growth of both digital and physical infrastructure has already had a profound effect on the FMCG sector, and this trend is expected to continue. Improved logistics and connectivity facilitate the efficient distribution of goods, further driving growth in the consumer goods sectors.

However, despite these positive developments, Moody's notes that significant challenges remain in addressing employment issues in non-agricultural sectors. Low participation in higher education and existing gender gaps in educational attainment are among the hurdles that need to be overcome to fully capitalise on the employment potential of the infrastructure boom.

As a result of the government’s push on both physical and digital infrastructure, India’s ranking in the World Bank's Logistics Performance Index has risen to 38 out of 139 countries, from its position 10 years ago, which was at 54 out of 160.

Its ranking in the infrastructure components of the LPI also rose, to 47 from 58 out of the same cohort of countries. India now boasts of the world's second-largest road network, trailing only the US.

Airport passenger handling capacity has also surged, with India recently overtaking Brazil and Indonesia to become the third-largest domestic aviation market, behind China and the US.

This growth in passenger traffic is driven by a burgeoning middle class and supportive policies like the UDAN scheme, introduced in 2016 to enhance regional aviation.

Despite these advancements, India's per capita travel and consumption remain lower than many emerging market peers, partly due to land size differences. However, India’s infrastructure density is notable, with road and railway densities higher than China's.

In addition to physical infrastructure, India has made strides in digitalisation, particularly through the DPI initiative. Government policies and schemes, such as Digital India, have expanded internet connectivity to rural areas and digitalised government services.

The Unified Payment Interface, a key component of DPI, processed Rs 200 trillion in transactions in fiscal 2023-24, a tenfold increase from fiscal 2017-18. The number of fast payment transactions per capita has also risen dramatically, reflecting the country’s growing digital engagement.

Overall, while infrastructure development offers substantial economic benefits and opportunities for growth across multiple sectors, addressing educational and employment disparities will be crucial for realising its full potential.