FY24 capex goal may be raised to ₹10 trillion

India is likely to double down on capital spending by allocating as much as ₹10 trillion to build ports, roads and other infrastructure in the next fiscal to spur growth as private investments remain anaemic despite record government spending, two people aware of the development said.

Finance minister Nirmala Sitharaman had announced a 35% increase in the capital expenditure target to a record ₹7.5 trillion for the year to 31 March, hoping the government spending would crowd in investments from the private sector.

But that has not happened as soaring inflation, monetary tightening, geopolitical risks and an uncertain global economic outlook have prompted companies, except some large conglomerates, to delay big projects.

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The government hopes boosting government expenditure on infrastructure will help create jobs and sustain the economic recovery amid global headwinds. But finding the funds for the massive capital spending programme may still be a challenge as food, fuel and fertilizer subsidies have considerably strained government finances despite buoyant revenue collections. If Sitharaman allocates ₹10 trillion in the February budget, the capex estimates for the year starting 1 April may nearly match the previous year’s increase.

Economists said the Centre’s revenue position looks good as gross tax collection grew 24% in FY23 up to 8 October to ₹8.98 trillion after jumping 34% last fiscal. Moreover, expectations are that revenue may remain buoyant even in FY24, allowing for an expansionary budget that further pushes up public capital spending and providing a leg-up to improve the overall investment climate in the country.

Though a proposal on the quantum of increase is still being discussed by the finance ministry with the various infrastructure sector ministries, a lineup of big projects proposed by ministries for next year may require capex support, said the first person aware of the development.

A query sent to a finance ministry spokesperson remained unanswered until press time.

While a blueprint for raising public capex is being prepared, the concern is whether the Centre would be able to spend the entire ₹7.5 trillion kept in the budget for this fiscal. According to estimates, the average capital spending of the Centre stands at around ₹57,000 crore per month in the six months to 30 September, which trails the required monthly average of ₹62,500 crore to meet the FY23 budget estimates (BE).

“The capex growth depends on the fiscal space the Centre has. But they are (Centre) much better placed now than in February because revenues are growing sharply. So ₹7.5 trillion investment target for FY23 could be done comfortably,” said N.R. Bhanumurthy, vice-chancellor of Dr B.R. Ambedkar School of Economics University, Bengaluru.

Government expenditure has clearly shifted towards capex for the past few years as such expenditure not only pushes up growth but also has a multiplier effect on the economy and helps in employment generation. According to estimates given by the finance ministry earlier, a ₹1 increase in capex by the government adds about ₹2-3 to the GDP over 1-2 years.

“As far as the capex push is concerned, the Union government will be able to do whatever is possible in the budget, but I don’t think they will go beyond ₹7.5 trillion. The progress so far shows the government was aggressive in a few sectors, such as railways, roads and telecom. Currently, we are not seeing the same kind of fundraising from the private sector,” said Bank of Baroda chief economist Madan Sabnavis, adding that in such a situation, the Centre may be pushed into more heavy lifting with regard to Capex.

The increased capex could continue to fund the needs of infrastructure sectors such as the development of roads and highways, ports, railways, shipyards, airports, public transport, and inland waterways.

Under the national infrastructure pipeline finalized by the Centre, an investment of over $1.4 trillion is envisaged in building social and physical infrastructure during 2019-25.

With private investment yet to fully pick up, the government may continue emphasizing infrastructure investment in the budget.

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