Keeping the tempo going, the Modi 3.0 government has in the latest budget persisted with its Capex-led growth strategy of recent years to propel economic growth and made an allocation of ₹ 11.11 lakh crore, accounting for 3.4 per cent of GDP, for 2024-25. 

 This is a clear pointer that government would continue to rely on Capex push to drive growth even under a coalition. Government. 

Although there has been no change to this allocation level as compared to this year’s interim Budget level, when allocation was pegged at ₹ 11.11 lakh crore, the Centre has now reaffirmed its commitment to fiscal support for infrastructure development for the next five years.

Improving infra

Noting that Centre has made significant investment over the years in building and improving infrastructure, Finance and Corporate Affairs Minister Nirmala Sitharaman said in her Budget speech that this had a strong multiplier effect. 

“We will endeavour to maintain strong fiscal support for infrastructure over the next five years, in conjunction with imperatives of other priorities and fiscal consolidation. 

Sitharaman said that Centre would encourage States to provide support of similar scale for infrastructure, subject to their development priorities. A provision of ₹ 1.5 lakh crore for long-term interest free loans has been made this year also to support the States in their resource allocation. 

Sitharaman also said that investment in infrastructure by private sector will be promoted through viability gap funding and enabling policies and regulations. A market-based financing framework will be brought out, Sitharaman added.

In the run up to the latest budget, industry was pinning hopes that government would go in for substantial increase (atleast 25 percent jump) in Capex allocation from the ₹ 9.5 lakh crore in 2023-24. However, the Centre has settled for 17 percent increase as was the case at the interim budget stage.

Story so far

Centre has been on a Capex spending spree in the recent years thereby effectively pulling economic growth to a new trajectory of over 7 percent. 

From level of ₹ 3.3 lakh crore in FY19, capex allocation has compounded at 27 per cent CAGR to the current ₹11 lakh crore allocation. For comparison, the allocation grew at 9 per cent CAGR in the FY14-19 period. The last five years clearly indicate a government spending push. This was aimed at dragging the economy out of Covid blues and putting it on a growth path.

The surge in capital expenditure (Capex) in recent years signifies a paradigm shift in economic dynamics. From an annual Capex allocation of ₹2.5 lakh crore half a decade ago, the Centre has ramped up spending to ₹11.11 lakh crore annually for 2024-25. States have also bolstered their Capex, albeit with varying degrees of enthusiasm, further fueling the growth trajectory.

The Union government has built infrastructure at a historically unprecedented rate, and it has taken the overall public sector capital investment from ₹5.6 lakh crore in FY15 to ₹18.6 lakh crore in FY24, as per budget estimates. That is a rise of 3.3X.

‘Bold Budget’

Sanjay Nayar, President Assocham, said, “This is a bold budget by the government, keeping in view longer-term fiscal prudence. With no easy giveaways, it focuses on a longer, more sustainable path of job creation through manufacturing in the country and a strengthened role of the MSMEs. 

Skilling the youth, formalising job creation, continued infrastructure spending, and urban development, along with the climate of enhanced local capex spending will encourage the private sector to join in, given under levered balance sheets.  This is a longer, more sure way to enhance employment and sustainable consumption”.

Chandrajit Banerjee, Director General, CII said that Union Budget provides continuity to India’s successful holistic economic strategy to drive growth with inclusion.

 “The Union Budget 2024-25 takes forward the Government’s successful economic strategy of the previous two terms, led by investments and reforms and focused on inclusion and empowerment”, he added.