Budget 2024 | Govt capex growth likely to slow down to 10% in FY25

The government's capital expenditure may witness a significant slowdown in 2024-25, with a Moneycontrol survey of 15 economists suggesting that this week's interim budget may allocate around Rs 11 lakh crore for the same.

To be sure, a capex target of Rs 11 lakh crore for the next year would still represent a new all-time high. However, it would only be around 10.3 percent higher than the budget estimate of Rs 10 lakh crore for the current financial year which, in turn, was a huge 33.4 percent higher than the budget estimate for 2022-23. The capex growth slowdown in seen as being key to the government's effort to cut its fiscal deficit to achieve the medium-term objective of 4.5 percent of the GDP by 2025-26.

According to economists, the government may revise down its capex for the current financial year by around Rs 30,000 crore to Rs 9.7 lakh crore. As such, a budget estimate of Rs 11 lakh crore for 2024-25 would represent an increase of 13.4 percent over the revised estimate.

"Based on our estimates of receipts and revenue expenditure, we think this fiscal deficit target would allow for a budgeted capex of Rs 10.2 lakh crore in 2024-25, implying a relatively sedate year-on-year expansion of around 10 percent, compared to over 20 percent expansion seen in each of post-Covid years," analysts from ratings agency ICRA said, adding that "higher amount of capex would impinge on the Centre's ability" in meeting the fiscal deficit target for 2025-26.

As per a Moneycontrol poll, the Centre may look to lower its fiscal deficit to 5.3 percent of GDP in 2024-25 from 5.9 percent in the current financial year.

Even at Rs 11 lakh crore, the Centre's capex push would remain firm. However, there have been indications for some time that the pace of capex growth has to slow down. In fact, Chief Economic Adviser V Anantha Nageswaran had warned in the run-up to last year's Budget that public capex cannot keep increasing as rapidly as it has in recent years for two reasons: it may not be necessary as private capex steps up and continued strong growth in public capex could push up the cost of capital.