Budget 2024: Increase in capex outlay expected; here’s what we know
3 min read • Updated: January 25, 2024, 7:39 PM
Most analysts and experts are predicting an increase of 10-20% in capex for FY 2024-25 as the Centre would try to balance between growth targets and its commitment to bring down the fiscal deficit.
Finance Minister Nirmala Sitharaman’s priority has been infrastructure development and growth if we see the capital expenditure outlay in the past three Union Budgets.
After the pandemic struck the economy in 2020, the government has consistently raised its capital outlay year after year at a healthy rate of over 30%.
Capital outlay, or capital expenditure (capex), is defined as money spent by the government on acquisition or maintenance of assets such as land, buildings, machinery, healthcare facilities and defence equipment. These assets produce earnings or dividends in the future and drive growth while also creating jobs. A significant part of the capital expenditure allocations goes towards the major infrastructure projects.
For example, payments towards construction of major infrastructure projects like hospitals, roads, highways, bridges, railway lines and airports would count as capital expenditure.
Now picture this, the government earmarked ₹4.39 lakh crore as capex for 2020-21. This number was raised by 35% to ₹5.54 lakh crore in the Union Budget for 2021-22.
During the subsequent Budget, capex was again increased by 35% to ₹7.5 lakh crore for fiscal year 2022-23. And last year, in a surprise move, capital outlay was raised to a record high of ₹10 lakh crore for 2023-24, an increase of 37.4% over the previous year.
The allocations in the past three Budgets has left everyone speculating on whether the government will continue with its capex push at the same pace this year as well, or will it slow down as private investment in certain sectors is seeing signs of revival.
The Finance Minister is going to present an Interim Budget ahead of the Lok Sabha elections, scheduled in April-May. The allocations for capital expenditure will be watched by experts as the government may have to take a route of fiscal consolidation.
What to expect from Interim Budget on Capex outlay
Most analysts and experts are predicting an increase of 10-20% in capex for 2024-25 as the Centre would try to balance between growth targets and its commitment to bring down the fiscal deficit to 4.5% of gross domestic product (GDP) by 2025-26.
Ratings firm India Ratings and Research said that capex growth may slow down to 12% in FY25 from 37.4% pegged in Budget for FY24. This is mainly due to the pickup in private capex in few sectors and the forthcoming general elections in April, it said.
Some industry experts expects an increase of 10-15% in government capex for 2024-25. It said that public infrastructure development, including roads, water, metro, trains, defence, digital infrastructure and green technologies, is probably going to remain a top priority in the interim Budget.
Ratings agency ICRA believes that the capex expansion would be modest this year. In its report, it said, “We estimate the government of India to budget for a capex of ₹10.2 lakh crore in FY25, implying a relatively sedate YoY expansion of about 10%, compared to over 20% 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.”
Meanwhile, industry body Confederation of Indian Industry (CII), in its budget recommendations for 2024-25, said that capital expenditure should be increased by at least 20% to ₹12 lakh crore.
CII said that the focus should be on economic development, social development, investment, industry, trade, infrastructure, among others, making India a developed economy by 2047.
Given the optimism around capital outlay, it would be interesting to see whether the government would be able to live up to the expectations while presenting the interim budget for 2024-25.