Government likely to do heavy lifting, capex to increase

With private investment still muted, the government is likely to maintain its momentum on increasing capital expenditure, especially for the infrastructure sector in the upcoming Budget to propel economic growth.Post-COVID-19, the Budget has been laying special emphasis on capex. It has kick-started a dormant cycle for the economy. As a result, India has witnessed over 7 per cent growth in the last three years, the highest among the large economies of the world. During the current financial year, the government has made a record-high provision of Rs 10 lakh crore towards capex. During 2020-21, the government earmarked Rs 4.39 lakh crore which increased by 35 per cent to Rs 5.54 lakh crore in the subsequent year.

Another 35 per cent hike in capex was done in 2022-23 to Rs 7.5 lakh crore which subsequently reached a high of Rs 10 lakh crore, an increase of 37.4 per cent. In the upcoming Budget too, the government is expected to earmark a large amount towards capex as such investment has a multiplier effect on the economy and it also crowds in private investment."We estimate Government of India to budget for a capex of Rs 10.2 lakh crore in FY25, implying a relatively sedate YoY expansion of about 10 per cent, compared to over 20 per cent expansion seen in each of the post-COVID years. The slowdown in capex growth is likely to have some bearing on economic activity and GDP growth," Icra said in its pre-budget expectations.

The capex rose by 31 per cent to Rs 5.9 lakh crore in April-November of the current fiscal (58.5 per cent of FY2024 BE) from Rs 4.5 lakh in April-November FY23 (60.7 per cent of FY23 Prov).

While the growth remained high, capital spending contracted in October 2023 (-14.9 per cent; first instance of contraction since April 2023) and then rose by a marginal 1.6 per cent in November 2023. Moreover, it has averaged at Rs 73,210 crore/month, 12.2 per cent lower than the required monthly average of Rs 83,400 crore to meet the budgeted target of Rs 10 lakh crore. India is a hugely infra-deficit country and heavy lifting in this regard is being done by the government which crowds in private investment.

With the growth in the economy, there has been a pick-up in private investment in recent times in some of the sectors like steel, cement and petroleum sector. According to Emkay Global Financial Services head research Seshadri Sen, capex by the government will continue and it will happen at a faster pace. The capex would help unlock the virtuous cycle. Investment leading to productivity growth, job creation, demand and exports feed into each other and enable animal spirits in the economy to thrive.