The Narendra-Modi government is likely to continue its expenditure push in the interim budget for 2024-25, which will be presented on February 1.

Finance minister Nirmala Sitharaman had steeply increased the capital expenditure outlay by 37.4 per cent to Rs 10 lakh crore in the last budget, from Rs 7.28 lakh crore a year ago.

“Investments in infrastructure and productive capacity have a large multiplier impact on growth and employment,” she said.

Economists said the outlay in the interim budget could be increased by about 10 per cent given the massive sum allocated in the last budget that has resulted in a higher base. Their estimates are also based on an analysis of government spending in this fiscal.

Aditi Nayar, chief economist, Icra, said the momentum of capex and execution of projects may slow down in early 2024 before the general elections, resulting in the Centre missing the capex target for this fiscal.

“Overall, the Centre’s capex to undershoot the 2023-24 budget estimates (BE) (Rs 10 lakh crore) by Rs 75,000 crore, implying a robust year-on-year growth of 26 per cent, albeit lower than the 35.9 per cent growth in the 2023-24 BE over the 2022-23. We expect the interim Budget will peg the capex outlay for 2024-25 at Rs 10.2 lakh crore,” Nayar said.

Madan Sabnavis, chief economist, Bank of Baroda, said in a report the Centre had spent 58.5 per cent of the targeted amount of Rs 10 lakh crore in the eight months of the current fiscal till November.

“This has been the trend in the past too, and the balance of four months will witness a distinct acceleration based on the progress on other fronts of the budget, especially revenue collections,” he said.

Sabnavis said private sector investors may not have picked up in a broad-based manner till December.

“Hence the heavy lifting is still to be done by the government — both the Centre and states.”

“The government has focused on raising capex spending by over 30 per cent CAGR (compounded annual growth rates) over the last three years, raising the budgeted capex target to 3.3 per cent of GDP, the highest in 18 years.

“They will likely meet the capex target in 2023-24, given the upside from gross tax revenues.

“However, we expect capex growth to decline to around 10 per cent year-on-year in 2024-25 (over our revised estimate for 2023-24), given the medium-term fiscal consolidation path of the government,” a Goldman Sachs report said.

Official data shows the Centre’s capital expenditure between April and September reached 49 per cent of its budgeted target of Rs 10 lakh crore for the fiscal year.

In September, the Centre’s capital expenditure was Rs 1.16 lakh crore, marking the highest monthly expenditure this fiscal year.

Over the years, key infrastructure agencies such as the National Highways
Authority of India and the Indian Railways have increasingly relied on budget allocations.
The government may also continue providing long-term interest-free capex loans
to states in 2024-25 to support economic activity nationwide.

The Special Assistance to States for Capital Investment 2023-24 generated investments in health, education, irrigation, water supply, power, roads, and railways.

It also contributed to India’s economic growth, as capital expenditure has a higher multiplier effect on the economy.