Union Budget 2024: Govt Likely Increase Capex To Fuel Economic Growth
The Budget has been giving capital expenditures more attention post COVID-19 pandemic
The government is expected to maintain its momentum on raising capital expenditure, especially for the infrastructure sector, in the upcoming Budget to fuel economic growth even though private investment is still muted. The Minister of Finance of India, Nirmala Sitharaman, will present the 2024 Union Budget on February 1 in Lok Sabha.
The Budget has been giving capital expenditures more attention post COVID-19 pandemic. It has sparked the economy's dormant cycle. As a result, India's economy has grown at the fastest rate among the world's major economies over the last three years, with above 7 per cent growth.
In the current fiscal year, the government has allocated a record-breaking amount of Rs 10 lakh crore for capital expenditures. The government set aside Rs 4.39 lakh crore for 2020–21; the following year, that amount rose by 35 per cent to Rs 5.54 lakh crore.
Between 2022 and 2023, capex increased by an additional 35 per cent to Rs 7.5 lakh crore; this amount later rose to Rs 10 lakh crore, a 37.4 per cent increase.
The government is anticipated to set aside a sizeable portion for capital expenditures in the upcoming budget as well since these investments stimulate private investment and have a multiplier effect on the economy.
"We estimate the government of India to budget for a capex of Rs 10.2 lakh crore in FY25, implying a relatively sedate YoY expansion of about 10 per cent, compared to over 20 per cent expansion seen in each of post-COVID years. The slowdown in capex growth is likely to have some bearing on economic activity and GDP growth," Icra said in its pre-budget expectations.
From April to November of the current fiscal year (FY24), capex increased 31 per cent to Rs 5.9 lakh crore from Rs 4.5 lakh (60.7 per cent of FY23 Prov).
The capital spending contracted in October 2023 (-14.9 per cent; the first instance of contraction since April 2023) and then rose by a marginal 1.6 per cent in November 2023. Moreover, it has averaged Rs 73,210 crore/month, 12.2 per cent lower than the required monthly average of Rs 83,400 crore to meet the budgeted target of Rs 10 lakh crore.
India needs more infrastructure, and the government is driving much-needed private investment in this area. With the growth in the economy, there has been a pick-up in private investment in recent times in some sectors like steel, cement, and petroleum.
Seshadri Sen, head of research at Emkay Global Financial Services, predicts that government capital expenditures will continue at a quicker rate.
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