Between Growth and Fiscal Consolidation

BUDGET 2023-24 strategised a structural shift in favour of capital expenditure (Capex) to push growth. Government Capex is known to generate higher multiplier effects.

- D.K. Srivastava

The RBI has estimated the central government Capex multiplier at 2.4 in the first year and at an even higher level in the second year. An increase of 37.4 per cent has been budgeted for Government of India's (Gol's) Capex.

In addition, the Gol has incentivised the state governments to undertake Capex by providing them grants for capital asset creation amounting to 1.2 per cent of GDP, extending an interest-free loan for 50 years for Capex undertaken in 2023-24, and permitting them a fiscal deficit limit of 3.5 per cent of gross state domestic product (GSDP). However, alongside, Gol's investment through its public sector enterprises has fallen from 2.3 per cent of GDP in 2019-20 to 1.1 per cent in 2023-24 budget estimate (BE). Considering both investment expenditures together, the extent of the increase is much less, rising from 4 per cent of GDP in 2019-20 to 4.5 per cent in 2023-24 (BE).