Finance Minister Nirmala Sitharaman on February 1, 2023 in her speech announced a robust capex push in a bid to spur economic growth with an allocation exceeding 3 per cent of the country’s GDP.
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Around Rs 10 lakh crore was allocated towards capital expenditure, a record high. Analysts termed it as a package which would ensure the continuum of India’s cyclical recovery.
“I am quite certain, this strong measure will encourage private players to reconsider their capex plans. Capital expenditures, by definition, have a greater multiplier effect than revenue expenditures, with each rupee spent having a multiplier of thrice the amount spent,” wrote Anish Shah for ET back in February.
It is this multiplier effect that the government is banking on, with the Finance Ministry terming the capex push as a part of the endeavour to make India a $5 trillion economy.
The sharp hike in the government’s capital expenditure—from Rs 4.1 lakh crore in FY21 to the budgeted Rs 10 lakh crore in FY24 (BE)—has supported growth and also initiated the crowding-in of private sector investment, a ministry official said.
In the subsequent GDP growth readings, analysts cited the Centre’s capex push as among the main drivers of the country’s economic growth.
Data released by the Finance Ministry in December showed that capex by CPSEs touched about 52 per cent of the Budget target at Rs 3.79 lakh crore in the first half of current financial year. This is higher than the capex by CPSEs in the April-September period of last financial year.
India’s capex (GFCF) to GDP ratio peaked in FY20 and has subsequently increased by 270 basis points, but it is still 500–600 basis points behind its previous peak, which was reached in the year 2010. IANS cited a Jefferies research as suggesting that as all three components of the capex cycle—housing, corporate capex, and government capex—are currently expanding, India should be less affected by any possible global slowdown.
“Capex has risen by a sharp 11 per cent/9.5 per cent YoY in 2Q/1HFY24. The broad basing of India’s rising investment cycle is well evident, but there is significant headroom here. The capex as percentage nominal GDP should rise to a near-decade high of 30 per cent in FY24.
“We believe though, there is a long way to go in the capex cycle. From the capex cycle peak of GFCF being at 35 per cent of GDP, the investment share in the economy declined to a low of 27 per cent in FY21,” the report said.
BUDGET FAQs
- What was the capex allocation in the Union Budget: FM Sitharaman allocated Rs 10 lakh crore towards capital expenditure or capex in the Union Budget in 2023 for FY23
- Budget 2024: What are the various parts of a capex cycle?: The GFCF has three major contributors — households, government and corporate.
- When will the Budget be announced?: FM Nirmala Sitharaman will announce Budget 2024 on February 1, 2024
