 "India Inc to press the capex pedal with Budget push")
An upturn in the private capital expenditure (capex) cycle, improved business sentiment, and healthy balance sheets of banks and corporates, along with the government’s continued thrust on capex, signal bright prospects for capex in India, the finance ministry said in its Monthly Economic Review for January 2024 released on Tuesday.
The government also expects inflation to further reduce due to measures announced to rein in food prices.
The Review notes a “reprioritisation in government spending, reflected in an improvement in the capital outlay to revenue expenditure ratio”.
“Despite rising capex, necessary expenditures to protect the people from the impact of uncertainties have not been compromised. The government’s inclusive approach to economic growth is highlighted in a slew of initiatives announced for the poor, women, youth, and farmers,” the finance ministry said.
The capex budget allocation has risen from ~4.1 trillion in 2020-21 to ~11.1 trillion in 2024-25 (FY25).
In the Interim Budget tabled on February 1, the Centre increased the capex target by 16.9 per cent for FY25 to ~11.1 trillion over the Revised Estimates for 2023-24 (FY24).
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“Not only has the outlay for key social schemes increased but there is also a rise in the share of spending on social services in total expenditure,” the finance ministry said.
The finance ministry review indicates that healthy rabi harvesting, sustained manufacturing profitability, and underlying service resilience would support economic activity in FY25. However, the Review adds that continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation in the developed world could extend tight monetary conditions.
“This could impact the expected recovery in global demand, thereby affecting the prospects for India’s exports,” the January report added.
The Review highlights that given persisting uncertainties for global output and trade growth, finding ways to enhance the competitiveness and attractiveness of India’s exports is both urgent and important.
The Review suggests that overall, the outlook for the Indian economy appears bright. “The Reserve Bank of India has forecast India’s real gross domestic product to grow at 7 per cent in FY25, with risks evenly balanced,” it added.
The Review also notes that the global slowdown, especially in India’s major trading partners, has led to a slowdown in demand for India’s merchandise exports. However, it adds that a decline in the overall value of imports due to a fall in international commodity prices has resulted in a narrowing of India’s merchandise trade deficit in the first 10 months of FY24.
HEALTH CHECK
Outlook for a reasonably low headline inflation positive
Measures announced in the Interim Budget to support India’s growth journey ahead
Amid changing spending pattern of government, fiscal consolidation not compromised
Healthy rabi harvesting, sustained manufacturing profitability to support economic activity in 2024-25
