The government may do the hard lifting, and capital spending might go up

The government may do the hard lifting, and capital spending might go up

The government may do the hard lifting, and capital spending might go up

The government plans to increase capital spending, particularly in the infrastructure sector, to promote economic development as private investment remains low.

In the next budget, the government will prioritize capital spending for economic expansion.

As long as private investment remains low, the government will probably keep up its pace in the next budget by raising capital spending, particularly for the infrastructure sector, to spur economic development. The budget is giving capital expenditures more attention after COVID-19. The economy's slumber cycle has begun as a result.

Consequently, during the last three years, India's economy has grown at the fastest rate among the world's major economies—more than 7%.

The government has allocated a record-breaking Rs 10 lakh crore for capital expenditures for the current fiscal year. The government allocated Rs 4.39 lakh crore in 2020–21; the next year, that amount rose by 35% to Rs 5.54 lakh crore.

In 2022–2023, capital expenditures rose by 35% to Rs 7.5 lakh crore; thereafter, they soared by 37.4% to reach an all-time high of Rs 10 lakh crore. The government is anticipated to set aside a sizable sum for capital expenditures in the next budget as well, as these investments boost private investment and have a multiplier impact on the economy.

Our estimate for the Indian government's capital expenditure budget is Rs 10.2 lakh crore for FY20, which is a rather low year-over-year growth of almost 10%, considering that every year since the COVID-19 pandemic has seen an increase of more than 20%. vanished. ICRA said in its pre-Budget predictions that there will probably be some effect on GDP growth and economic activity from the reduction in capital expenditure growth.

From April to November of the current financial year, capital expenditures climbed by 31% to Rs 5.9 lakh crore (58.5 percent of FY2024 BE) from Rs 4.5 lakh crore (60.7 percent of FY2013) in the same period last year.

Capital spending decreased by -14.9 percent in October 2023 (the first contraction since April 2023), even though growth remained strong, and then somewhat rebounded by 1.6% in November 2023. Additionally, it now averages Rs 73,210 crore per month. This is 12.2% less than the monthly average of Rs 83,400 crore that is needed to reach the Rs 10 lakh crore budgeted goal. India has a severe infrastructure deficit, but the government is working very hard to boost private investment in this area.

Recent years have seen a surge in private investment in industries including steel, cement, and petroleum due to economic expansion. The head of research at Emkay Global Financial Services, Seshadri Sen, predicts that government capital expenditures will continue, but at a quicker rate.

The positive feedback loop will be aided by capital spending. Productivity gains, the creation of jobs, demand, and exports all encourage one another and help the economy's animal spirits to thrive.