Interim Budget 2024: How capex of Rs 11.1 trillion will push India’s growth?

Capex push: Finance Minister Nirmala Sitharaman following the typical budgetary allocation under her leadership, did the same, by allocating 11.1 lakh crore for capex in FY25. The allocation is 11 per cent more than Rs 10 lakh crore allocated last year.  The growth in capex was estimated by analysts and experts and is also seen as the moment when government capex allocation seems to be peaking out in FY25. 

In a post-budget interaction with Republic Business, KV Subramanian, Executive Director of IMF said, “ The budget is judicial on the fiscal front. And he was expecting a capex growth of 20 per cent this year, but even 11 per cent growth in capex is good.”   The government tried to balance between growth and fiscal consolidation. 

The government strikes a fine balance between pushing growth by allocating an all-time high capex of Rs 11.1 lakh crore and showing its determination to reach the medium-term fiscal target of 4.5 per cent by FY26. 

According to Crisil, the moderation in capex growth next year is in line with the government’s fiscal consolidation plans. “There are two ways of looking at the capex thrust from the pronouncements: − The budgeted government capex, which includes capital expenditure plus revenue grants for capital creation, sees lower growth of 17.7 per cent next fiscal compared with 21.5 per cent this fiscal,” Economists of Crisil said in the post-budget report. 

The report showed that a more comprehensive measure — public sector capex, which includes budgeted government capex (as above) and PSU capex — sees a growth uptick to 15.2 per cent next fiscal from 13.4 per cent this fiscal. “It is interesting to note that this measure grew at a much slower pace than the budgeted 27.7 per cent this fiscal,” the Crisil report showed. 

The report further added that regardless of the way it is measured, the impact of capex on the economy is clear − Budgeted government capex rises to 4.6 per cent of GDP next fiscal from 4.3 per cent this fiscal and is much higher than the 2.7 per cent average seen pre-pandemic during fiscals 2017-2020 − Public sector capex is even higher at 5.6 per cent of GDP in fiscal 2025.

Similarly, Yuvika Singhal, Economist at QuantEco in its post-budget report said, “Domestic investment in recent years has been single-handedly driven by Government capex – a necessary heavy lifting at a time when the private sector was coping with the after-effects of the pandemic.” Singhal also opined that with the operating environment turning conducive for private sector capex recovery (healthy corporate balance sheets, benign input costs, improving capacity utilization, competitive corporate tax rate), the government took the foot off the capex accelerator partially in FY25 (by budgeting a moderate pace of increase in capex, also a sine que non for meaningful fiscal consolidation).

With gross g-sec borrowing now slated to moderate to a 3-year low of Rs 14.13 trillion, the private sector would benefit from better availability of lendable resources, hopefully at a lower rate. She also believes that FY25 could see a broad-based capex upturn firing on all cylinders 6 – Government, private and households