High-capex budget likely in bid to offset global slump

The Centre is likely to press ahead with its high capital expenditure plan in the upcoming budget to counter a deepening global slowdown that may dent India's economic recovery, officials aware of the deliberations told ET.

The key infrastructure ministries may see a substantial rise in allocation while others may see modest increases.

A "balanced approach" will be central to this budget even though it will be this government's last full budget, as revenues next year are unlikely to be as buoyant and the turbulence in the global economy is expected to have some impact on India, an official said. The next general election will be held in April-May 2024.


The FY23 budget had stepped up capital expenditure by 35.4%, setting aside nearly a fifth of the total budget for the infrastructure sectors. Total capital expenditure is projected to increase from 2.5% of GDP in FY22 to 2.9% of GDP in FY23. In the first six months of the fiscal year, the Centre spent 45.7% of the total allocation. The budget is set to be announced February 1.

The capital expenditure allocation is again likely to get a bump up, including a separate line of credit for states, of about 20-25% in the budget.

No Splurging
"There would be no compromise on capex because that is much needed to support the economy," said another official, adding that the government would push ahead with balanced spending without splurging. Railways, roads, and ports are likely to see a significant increase in their allocations, in line with the infrastructure push and their capacity to absorb large funds.

A higher allocation to these sectors is also needed to support the Gati Shakti programme. The digital platform brings together 16 ministries for the coordinated implementation of infrastructure connectivity projects. The annual allocation of other social sector ministries is likely to be up 15-20%, depending on their utilisation in FY23, a third official said.

The finance ministry has told ministries to go ahead with their spending plans, the official said.

Pre-budget Discussions

In their pre-budget discussions with finance minister Nirmala Sitharaman on Monday, economists suggested the government step up capital expenditure. High capital spending has supported economic growth and started to trigger private investment revival.

Economists say this support will be crucial next year when the Indian economy will face the full force of the global slowdown and the near recession in the developed world. The IMF expects India's growth to decelerate to 6.1% in FY24, from an estimated 6.8% in the current year. "We also expect the government to continue its focus on capital spending and are seeing signs of the nascent investment recovery continuing," Goldman Sachs said in a report earlier this month.