GROWTH SUPPLEMENT

High capital expenditure will boost the economy, but sluggish consumer demand and fiscal deficit remain a concern

- NACHIKET KELKAR

Capital investment holds the key to speedy and sustained economic revival and consolidation through its multiplier effect,” said Finance Minister Nirmala Sitharaman during the budget speech. And she remained true to her word, increasing capital expenditure by 35.4 per cent to Rs 7.50 lakh crore for the year ending March 2023. The government has also proposed to give ₹1 lakh crore in 50-year interest-free loans to states for capital investment. According to Sitharaman, the effective capital expenditure of the Central government is estimated at ₹10.68 lakh crore next year, about 4.1 per cent of the GDP.

“The underlying macroeconomic strategy behind this budget is one of pump-priming the economy through public investments, hoping that economic buoyancy would crowd in private sector capex,” said Abheek Barua, chief economist at HDFC Bank. The overall expenditure of the government has been estimated at ₹39.45 lakh crore, which is about 13 per cent more than the previous budget estimate and 4.6 per cent more than the revised expenditure estimate.

Capital investment helps create jobs, inducing demand for goods and services. “Instead of redistributive direct fiscal support, an investment-led growth remains the government’s economic management mantra,” said Barua.