Finance Minister Nirmala Sitharaman on February 1, 2023 in her speech announced a robust capex push to stimulate economic growth with an allocation exceeding 3 percent of the country’s GDP.
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Around Rs 10 lakh crore has been allocated to capital expenditure, a record high. Analysts termed it as a package that would ensure the continuum of India’s cyclical recovery.
“I am quite sure, this strong measure will encourage private players to reconsider their capex plans. Capital expenditure, by definition, has a greater multiplier effect than revenue expenditure, with every rupee spent having a multiplier of three times the amount spent,” Anish wrote. Shah for ET back in February.
It is this multiplier effect that the government is banking on, with the Finance Ministry calling the capex push part of the drive to make India a $5 trillion economy.
The sharp increase 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 accumulation of private sector investment, said an official of the ministry
In subsequent GDP growth readings, analysts cited the Centre’s capex push as among the key drivers of the country’s economic growth.
Data released by the Finance Ministry in December showed that capex of CPSEs touched about 52 percent of the budget target at Rs 3.79 lakh crore in the first half of the current financial year. This is higher than the capital of CPSEs in the April-September period of the last financial year.
India’s capex (GFCF) to GDP ratio peaked in FY20 and has since 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 Jefferies research as suggesting that since all three components of the capital cycle—housing, corporate capital and government capital—are currently expanding, India should be less affected by any potential global slowdown.
“Capex rose by a sharp 11 per cent / 9.5 per cent YoY in 2Q/1HFY24. The broad base of India’s rising investment cycle is well evident, but there is significant capacity here. Capital as a percentage of nominal GDP should increase to close. -decade high of 30 percent in FY24.
“We believe, however, that there is a long way to go in the capex cycle. From the capex cycle peak of GFCF at 35 percent of GDP, the investment share in the economy has declined to a low of 27 percent in FY21,” said the report.
Frequently Asked Questions about BUDGET
- What was the capital allocation in the Union Budget: FM Sitharaman allocated Rs 10 lakh crore towards capital expenditure or capital in the Union Budget in 2023 for FY23
- Budget 2024: What are the various parts of capital cycle?: The GFCF has three main contributors — households, government and corporate.
- When will the Budget be announced?: FM Nirmala Sitharaman to announce Budget 2024 on February 1, 2024