India’s industries are counting on the government to target larger capex outlay of atleast ₹12-lakh crore in the upcoming interim Budget (2024-25) to support higher GDP growth in a year when global economic slowdown in expected to be pronounced.

This comes even as the private sector’s side of investment push has not been exuberant in the recent years. They now want the central government to continue with its capex-led growth strategy as seen in last three years when capital expenditure increased from 2.15 per cent of GDP in 2020-21 to 2.7 per cent of GDP in 2022-23.

For current fiscal 2023-24, the Centre had budgeted a capex outlay of ₹10-lakh crore, nearly 33 per cent over the ₹7.5-lakh crore budgeted in the previous fiscal. 

Till November-end of this fiscal, Centre’s capex rose 31 per cent to ₹5.9-lakh crore, from the ₹4.5-lakh crore in April-November 2022.

Positive outlook

“Our expectation is that there is going to be a substantial bump up of capex outlay by government in the interim Budget to the tune of ₹13-14 lakh crore to give major push to economic growth in an election year,” SP Sharma, Chief Economist and Deputy Director General, PHDCCI told businessline here.

The Centre is expected to go all out to ensure that Indian retains the tag of fastest growing large economy in 2024-25 as well, he added.

While corporate India anticipates further capex push in the interim Budget, some economists feel the government may go in for a measured increase in capex outlay and noted that much would depend on the government’s fiscal consolidation strategy in an election year.

On its part, private sector has only been playing second fiddle in the recent capex resurgence story and have been measured in putting fresh investments. The animal spirits expected of the sector on the back of government’s heavy lifting in pushing up capital expenditure over the last three years has been noticeably missing, say economy watchers.

Going forward, private capex cycle is only going to be measured even as all ingredients are there for it to take off, they noted. 

Capacity utilisation is at 75 per cent, interest rates are at peak (which will come down this year) and consumption growth is brisk in urban areas although not seen in rural India.

“We don’t expect 2024-25 to have a loud or exuberant private capex cycle. We expect it to be measured. We are seeing intent to add capacity in variety of sectors, however it’s measured and not loud”, Aditi Nayar, Chief Economist and Head-Research and Outreach, ICRA said.

She said that ICRA apprehends that the momentum of capex and execution of projects may slow down in early-2024 prior to the general elections, resulting in the FY24 capex target being missed. 

Overall, ICRA expects the Centre’s capex to undershoot the FY24 Budget Estimates (BE) (₹10.0-lakh crore) by ₹75,000 crore, implying a robust y-o-y growth of 26 per cent, albeit lower than the 35.9 per cent growth in the FY24 BE over the FY23, she said.

“Our expectation is that the interim Budget will peg the capex outlay for 2024-25 at ₹10.2 lakh crore,” Nayar added.

On growth path

Madan Sabnavis, Chief Economist, Bank of Baroda, said that Centre’s capex will by definition continue to increase in interim Budget. “What needs to be seen is if ratio of Capex to overall size of budget is going to increase or not. I don’t expect overall Budget to increase by over ₹5-lakh crore given trend growth in tax revenues,” Sabnavis told businessline.

“There is a limit to which Budget can expand. Our expectation is that a maximum of ₹11-lakh crore can be provided for the capex in interim Budget. Centre has to allocate for other programmes as well.”

He said that data upto December 2023 shows that private sector investment may not have picked up in a broad based manner and the heavy lifting is still to be done by the Government — Centre and the States.

Although Centre has spent only 58.5 per cent of BE till November 2023, it has been the trend in the past too that the balance four months will see a distinct acceleration based on the progress of the other fronts of the Budget, especially revenue collections, he added.

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