New Delhi: In its bid to bolster infrastructure projects, the Union Budget has proposed to carry on doling out interest-free loan to the state governments for a period of 50 years. Union finance minister Nirmala Sitharaman announced measures in the budget to transform Indian cities into modern growth hubs.
As announced, the Central government has allocated a sum of ₹ 1.5 lakh crores for the states to complete the infrastructure projects, the processes of which have already been initiated. This amount will be provided in the form of 50-year interest free loans. This method of helping out the states with capex was adopted during the Covid pandemic period, when financial condition of many states had suffered major setbacks.
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Centre of excellence in AI
The Union Budget has allocated ₹ 500 crore to set up a Centre of Excellence in Artificial Intelligence (AI) for education. Apart from this, the government has increased allocation for key technology projects including production-linked incentives (PLIs) for mobile phones, IT hardware, semiconductor scheme and IndiaAI Mission, by about 84% to ₹18,000 crore for the next fiscal.
Industry bodies hailed the government’s move to set up the centre of excellence in AI, describing it as a forward looking move. This is in continuation of the government’s announcements in 2023 to set up three Centres of Excellence in AI for agriculture, health, and sustainable cities.
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₹1 lakh crore Urban Challenge Fund
The Union Budget also proposed to set up ₹1 lakh crore Urban Challenge fund to boost urban infrastructure. The fund will support implementation of the ‘cities as growth hubs’, ‘creative redevelopment of cities’ and ‘water and sanitation’. The government has announced an initial allocation of ₹ 10,000 crore in the FY 2025-26 to kickstart this initiative.
The fund will finance up to 25% of the cost of bankable projects with a stipulation that at least 50% of the cost is funded by bonds, bank loans, and public-private partnerships (PPPs).
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Government Initiatives and Reforms
The Union Budget has come out with incentive programmes for the states for the power sector reforms, meant to improve electricity distribution and transmission in the country. Additionally, the Central government would launch a new asset monetization plan, which is expected to generate ₹10 lakh crores to fund new infrastructure projects during the year 2025-30.
All Houses to Get Supply Water under Jal Jeevan Mission
The Union finance minister announced the extension of the Jal Jeevan Mission (JJM) till 2028, with an outlay of ₹67,000 crore for the 2025-26 fiscal. Launched in August 2019, the JJM was aimed at providing functional household tap connections (FHTC) to provide 55 lpcd (litre per capita per day) drinking water to all rural households in the country by 2024.
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However, the scheme saw a massive cut in allocation at the revised estimate (RE) stage during the current fiscal year 2024-25. The minister claimed that 15 crore households representing 80% of India’s rural population have been provided access to potable tap water connections since the mission was launched in 2019. The outlay for the JJM would be enhanced to make sure that 100% of households get the supply of potable water.
Impact Analysis of Budget 2025 on Infrastructure Sector
Budget 2025 has made several announcements, which are aimed at improving infrastructure on several fronts. For example, quality power supply is at the core of infrastructure. Keeping this in mind, the budget has announced incentives for states to improve electricity distribution and transmission. Besides, the government is making efforts to ensure that all households get portable water. Currently, the infrastructure in many Indian cities needs to be improved. Hence, the budget has announced initiatives to transform cities by improving sanitation & water infrastructure.
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Comparison with Budget 2024 Provisions
A number of infrastructure-related announcements made in Budget 2025 are on the lines of Budget 2024. For example, the Central Government had made a provision for long-term interest-free loans for states in Budget 2024. Sitharaman made similar announcements in Budget 2025 as well. It is clear that the Central Government wants to work with state governments to improve India’s infrastructure.
Future Outlook for the Infrastructure Sector Post-Budget 2025
Budget 2025 shows the Central Government’s unwavering commitment to improve India’s infrastructure. Be it providing interest-free loans to states, efforts to modernize cities, introducing power sector reforms, or using AI, it seems that the government wants India’s infrastructure to improve significantly in the future.
