Capex target for FY25 set at new record of Rs 11.11 lakh crore, but FY24 aim missed

The government has been pushing capital expenditure to boost economic growth.

The government has allocated Rs 11.1 lakh crore as capital expenditure for the next fiscal year, Finance Minister Nirmala Sitharaman said in her budget speech on February 1. While this is an increase of 11.1 percent from the current year's Budget estimate, it is 16.9 percent higher than the revised estimate.

The Centre was looking to spend Rs 10.01 lakh crore on capex in 2023-24. However, it has missed the target by Rs 50,715 crore, primarily due to lower-than-anticipated utilisation by states of the capex loan scheme for them. While Rs 1.3 lakh crore had been budgeted for the Special Assistance as Loan to States for Capital Expenditure scheme for 2023-24, the revised estimate for the same is Rs 1.06 lakh crore. For 2024-25, the government has retained the allocation for the scheme - under which interest-free loans are given to states for 50 years only for capex - at Rs 1.3 lakh crore.

Also Read: Andhra, Kerala yet to get any approval from Centre for FY24 capex loans

The overall capex target for 2024-25 is broadly in line with expectations, with a Moneycontrol poll predicting that the allocation for 2024-25 would increase to Rs 11 lakh crore and the revised estimate for 2023-24 would be around Rs 9.7 lakh crore.

"The pace of increase in capex will slow slightly in 2024-25, but that was expected," said Sonal Varma, Nomura's Chief Economist for India and Asia ex-Japan.

"Over the last 2-3 years, private capex was weak, so public capex stepped in. Now with private capex likely to pick up, the government is slowly stepping back to prevent crowding out," Varma added.

These sentiment had been first voiced by Chief Economic Adviser V Anantha Nageswaran way back in December 2022 when he 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.

While the Centre's capital expenditure for 2024-25 is estimated at Rs 11.11 lakh crore, its effective capex after accounting for grants-in-aid for creation of capital assets, which include allocations under demand-driven schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act scheme, stands at Rs 14.97 lakh crore, up from the revised estimate of Rs 12.71 lakh crore in 2023-24.