India stands at a critical juncture in its development journey, grappling with the challenge of how best to allocate its limited public funds. The debate over prioritising infrastructure, such as highways, railways, and airports, versus investments in the social sector, including healthcare, education, and welfare, has become increasingly pressing. Both are crucial for national progress, but recent spending trends reveal a disproportionate focus on infrastructure.
This imbalance risks undermining equitable and sustainable growth in the long run. Infrastructure development has long been regarded as a cornerstone of economic prosperity. To address its infrastructure deficit, India has initiated ambitious programmes like the National Infrastructure Pipeline (NIP), which aims to invest Rs 111 lakh crore between 2020 and 2025. This includes substantial allocations for transportation, energy, and water and sanitation. Schemes like the PM Gati Shakti seek to modernise logistics and improve connectivity, ultimately targeting a reduction in India’s logistics costs from the current 14 per cent of GDP to the global average of 8-10 per cent. Such initiatives align with the government’s goal of becoming a $5 trillion economy.
However, the Union Budget for 2023-24 reflects a stark disparity in priorities. Of the Rs-45 lakh crore total expenditure, Rs 10 lakh crore was allocated for capital expenditure, primarily for infrastructure, representing a 33 per cent increase from the previous year. In contrast, healthcare and education – sectors directly tied to human development – received far smaller allocations of Rs 89,155 crore and Rs 1.12 lakh crore, respectively. Compared to countries like Brazil, which spends 6.5 per cent of its GDP on education and 9 per cent on healthcare, India’s investment in these areas appears insufficient.
The emphasis on infrastructure, while essential for GDP growth, comes at the cost of social investments that have a more profound and sustainable impact on human well-being. India’s low Human Development Index (HDI) ranking of 134 out of 193 countries in 2023 underscores the urgency of addressing gaps in healthcare, education, and social welfare. Despite the National Education Policy (NEP) 2020 proposing that public spending on education should reach 6 per cent of the GDP, current levels hover around 3 per cent. The situation is reflected in poor learning outcomes, with the 2022 Annual Status of Education Report (ASER) revealing that only 20 per cent of Class 5 students in rural areas could read a Class 2 text. Healthcare fares no better, with spending stagnating at 2.1 per cent of the GDP, far below the global average of 6 per cent. The Covid-19 pandemic exposed severe inadequacies in India’s healthcare system, including shortages of hospital beds, medical staff, and equipment.
Poverty and inequality exacerbate these challenges. Nearly 10 per cent of India’s population lives below the international poverty line of $2.15 per day, according to the World Bank, and the country faces one of the highest levels of wealth inequality globally. Programmes designed to address food security, rural employment, and affordable housing remain underfunded when compared to large-scale infrastructure projects.
A skewed development model
The preference for infrastructure spending is not purely economic but also deeply political. Large infrastructure projects generate immediate, visible benefits such as job creation and economic activity, making them attractive for governments seeking electoral gains. In contrast, the outcomes of social investments, such as improved literacy rates or better healthcare metrics, take longer to materialise and are less conspicuous. This short-term focus neglects the long-term economic dividends of social spending. A 2022 study by the International Monetary Fund (IMF) found that increasing public health expenditure by just 1 per cent of the GDP could boost GDP growth by up to 0.7 per cent in the long run.
Ignoring the social sector while prioritising infrastructure creates a hollow foundation for growth. A population that is undernourished, poorly educated, and unhealthy cannot fully harness the benefits of advanced highways or industrial parks. India’s labour force participation rate, particularly among women, remains alarmingly low due to inadequate access to education, healthcare, and skills training.
To address these challenges, policymakers need a more integrated approach that links infrastructure investments directly to human development. For instance, expanding digital infrastructure could play a transformative role in enhancing access to education, healthcare, and government services.
The declining school enrolment rates provide a stark warning about the state of the education system. Recent data from the Unified District Information System for Education (UDISE+) reveals that school enrollments fell from 26.02 crore in 2018-19 to 24.8 crore in 2023-24, a decline of 6 per cent, or 1.22 crore students. States like Bihar, Uttar Pradesh, and Maharashtra recorded the sharpest declines, with Bihar alone losing over 35.65 lakh students. While a part of this drop can be attributed to improved data accuracy under the revamped UDISE+ system, it also reflects deeper issues such as inadequate school infrastructure, poor learning outcomes, and rising economic pressures on families.
India’s development cannot rest solely on skyscrapers and highways; it must also nurture its social fabric. Infrastructure and social investments should not be seen as competing priorities but as complementary pillars of progress. A robust infrastructure network can enable social mobility, while an educated and healthy workforce strengthens the economy. Policymakers must recognise that social sector spending is not merely an expense but an investment in the nation’s future. Only by striking a balance can India achieve inclusive and sustainable growth, ensuring that no one is left behind in its march towards progress.
(The writer is an associate professor at the Department of Economics, Christ University)