FIRING ON ALL CYLINDERS

The government is pushing on the capex front; it's now up to the private sector to unleash the 'animal spirits' and embark on the expansion path

Presenting the Interim Budget early this month, Union Finance Minister Nirmala Sitharaman hit an ‘auspicious’ note by announcing the central government capital expenditure (capex) for FY25 at ₹11,11,111 crore, an 11% growth over the previous fiscal, veering away from the tradition of staid budgetary numbers.

While the numerological significance awed, many were not enthused and quickly pointed out that the government’s capex growth has slowed from 34% hike in the current fiscal’s Budget, to 11% in the next. The FY25 capex is, though, a 16% hike over ₹9.5 lakh crore revised estimates.

The lower growth, albeit on a high base, marks a return to normalized growth in spending after a stellar period when the central government capital expenditure grew 26% CAGR in FY19-24.

HOW BIG IS THE CAPEX?

The Indian economy has been on a roll over the last four years by tripling the capex outlay for developing physical capital for connectivity and asset creation.

In FY24, India witnessed the highest central government capital expenditure as a share of nominal GDP since 2004-05. Despite being the highest in the new GDP series (2011-12), Union government capex constituted only 10.8% of nominal Gross Fixed Capital Formation (GFCF) in FY24, a fraction of the total investment.

The FY25 Budget emphasizes increased capex, offering interest-free loans to states, and encouraging private sector research and development spending. India’s gross fixed capital formation is estimated to grow by 10.3% in the current fiscal year, with a deliberate focus on public capex to address infrastructure deficits.