Budget 2024: Capex growth to normalize despite the consistent capex focus

Capex to sustain growth: In the interim budget 2024, the trend of capex-led fiscal spending is likely to continue, the pre-budget note by Emkay said. 

“We expect the capex/GDP to stay healthy at 3.3 per cent (FY24E: 3.3 per cent). The distribution of capex spend is likely to stay focused towards railways, roads, Defence and civil aviation. That said, the spending pace is likely to relax ~10 per cent after having seen consistent growth of ~32 per cent in the last 3 years,” the note read. 

Themes of Centre-States

The theme of Centre-State's “convergence in capex” will endure, and the Centre may continue to incentivize states towards increasing capital spending with the special financial windows. According to the report, the capex-only loans to the states to increase to Rs 1.4 lakh crore from Rs 1.3 lakh crore in FY24BE. However, the states are running behind their special capex loan scheme target for FY24. 

Of the Rs 982 billion-worth projects approved by the Centre, Rs 600 billion has been disbursed so far; of these states, some did not receive enough funds due to lack of linked reforms and some are yet to exhaust their first instalment. 

“We expect states to fall short by Rs 200-300 billion in availing this facility. Thus, even with higher allocation next year, states’ capacity to undertake more capex and infra spending may be nearing their limit,” the report added further.

The pre-budget document also said that assuming a modest overall expenditure growth at 5 per cent in FY25E (revex and capex growth at 3.5 per cent and 12 per cent, respectively, after the 3 per cent and robust 30 per cent in FY24E). 

“ The scope of going outright populist seems bleak. In our view, amid the moderating tax revenue growth and high committed revex and market borrowings,” the Emkay report added.