Budget 2023 | Will private sector capex revival happen meaningfully in FY24?

The Indian economy finds itself in a ‘bright spot’ with a projected growth rate of 6 percent-6.8 percent in 2023-24, which is the highest among other emerging economies. This comes as a positive signal to gear up the business environment and private investments in the economy. The 33 percent rise in capital outlay amounting to Rs 10 lakh crore for 2023-24 will generate a multiplier effect for the overall growth of the economy and crowd in more private investments through the creation of incentives for the private sector. This continuum for the rise in capital outlay has been in place for the last three consecutive years. A significant part of the outlay is directed towards infra push through development of railways, roads and the revival of 50 new airports which will have spillover effects via increased demand for steel, cement, railway wagons, auto products like trucks and tractors and the creation of more employment opportunities.

Another focus of the outlay is to facilitate states via 50-year interest-free capex loans for one more year. The enhanced budgetary allocations for infrastructural developments and favourable policy mechanism would act as a catalyst for private sector capex in our country in the year ahead.

Credit support

The boost to private sector capex in FY24 will be even more pronounced in the light of over 30 percent credit growth to the MSME sector during January-November 2022. This has been further supplemented with the infusion of Rs 9,000 crore into revamped credit guarantee scheme for the MSME sector, thus bringing in additional collateral-free loans and lowering the credit cost for it. The increasing flow of funds and enhancement of the threshold limit for presumptive tax benefits from Rs 2 crore to Rs 3 crore will improve the capacity utilisation and expand the production possibility frontiers.

The emerging and yet unexplored areas for new businesses i.e. fintech solutions, start-ups in wide-ranging areas, increasing use of digital infrastructure across broad sectors, e-commerce and the government’s focus on Artificial Intelligence sector will provide the platform to new private players for bringing in fresh private investments in these areas. The government impetus for these unexplored areas and the appropriate mechanism being put in place for the same would provide a boost to private sector capex and give much-needed support for building a robust ecosystem of start-ups as well as AI in our country.

In addition, the continued focus of the government on the electric vehicle segment and transition to green energy for becoming a low-carbon economy has channelised a significant amount of private investments in these sectors, attributing to a large number of appropriate measures taken by the government – incentives on the purchase of EVs, putting the EV sector in priority sector lending and commitments to long-term low emission development strategy. The government clearly identifies green growth as one of the pillars of development, for which it has announced support measures for storage and renewable energy evacuation infrastructure.

Consumption demand

Another contributing factor for the push in private sector capex is the income tax rebate announced in the Union Budget. This would enhance the personal disposable income of the households which will raise consumption expenditure and aggregate demand in the economy. The demand for passenger vehicles grew 28 percent year on year in January 2023 compared to the previous year. Private consumption as a percentage of GDP has been 58.4 percent. These positive developments would keep the domestic demand trajectory intact and spur private investments in the year ahead.

In times of global headwinds, weak external demand and bleak growth forecasts by the IMF for major economies, it is therefore of utmost significance that the sustained and high growth trajectory of the Indian economy should be driven through sufficient domestic demand.

In light of a number of positive developments in our economy, we are very hopeful that appropriate government measures and enhanced allocation for capital outlay coupled with emerging opportunities for private sector players in new and unexplored areas would set the stage for increasing private sector investments.

The writer is President, PHDCCI.