The Union government may allot a record Rs 11 lakh crore for capital expenditure for 2024-25, with the year-on-year rate of growth in the allocation set to be significantly lower than has been the case in recent years.
According to a Moneycontrol survey of 15 economists, the capex allocation for the next financial year in the Interim Budget set to be presented by Finance Minister Nirmala Sitharaman on February 1 may only be around 10.3 percent higher than this year's budget estimate of Rs 10 lakh crore.
At Rs 10 lakh crore, the capex target for 2023-24 was a huge 33.4 percent higher than the budget estimate for 2022-23. However, this is unlikely to be met, with economists of the opinion that it may be revised slightly lower to Rs 9.7 lakh crore. In such a situation, a budget estimate of Rs 11 lakh crore for 2024-25 would represent an increase of 13.4 percent over the expected revised estimate.
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The slowdown in capex growth is seen driven by fiscal considerations, with the Centre hoping to cut its fiscal deficit to 4.5 percent of the GDP by 2025-26. As per a Moneycontrol poll, the Centre may target a fiscal deficit to 5.3 percent in 2024-25 from 5.9 percent in the current financial year.
| Organisation | FY25 Capex Estimate (in Rs lakh crore) |
| ICRA | 10.2 |
| ANZ | 10.5 |
| IDFC First Bank | 10.77 |
| DBS Bank | 10.9 |
| CareEdge | 11.0 |
| Deutsche Bank | 11.0 |
| Nomura | 11.03 |
| Kotak Institutional Equities | 11.22 |
| Elara Capital | 11.4 |
| Barclays | 11.5 |
| BofA Securities | 11.5 |
| ICICI Bank | 11.5 |
| Motilal Oswal Financial Services | 11.51 |
| Bank of Baroda | 11.5-12.0 |
| India Ratings | 10.7 |
According to Kotak Institutional Equities, the pace of Centre's capex over the next two years will be "keenly watched" and could slow down to 15-20 percent as the fiscal deficit is reduced to around 4.5 percent. Analysts from ICRA, who think the capex target for next year may be set at Rs 10.2 lakh crore, said a higher allocation would "impinge on the Centre's ability" to meet the fiscal deficit target for 2025-26.
To be sure, there were indications more than a year ago that pace of capex growth may come down, with Chief Economic Adviser V Anantha Nageswaran saying in the run-up to last year's Budget that public capex cannot keep increasing as rapidly as it has in recent years. And there are already signs that capex growth has started to cool.
"On a six-month rolling sum basis, capex growth has moderated from 50.7 percent to less than 9 percent," Nomura economists Sonal Varma and Aurodeep Nandi said in a note.
For April-November 2023, the Union government's capex stood at Rs 5.86 lakh crore – or 58.5 percent of the allocation – meaning that it has fallen behind the run-rate needed to meet the full-year target.
As usual, the capex allocation for 2024-25 will likely be dominated by defence, railways, and roads and highways. Further, the amount of long-term, interest-free loans to states under the Scheme for Special Assistance to States for Capital Investment may be raised slightly from Rs 1.3 lakh crore this year.
However, states are unable to fully utilise this scheme.
"We expect states to fall short by Rs 20,000-30,000 crore in availing this facility. Thus, even with higher allocation next year, states' capacity to undertake more capex and infra spending may be nearing their limit," Madhavi Arora and Harshal Patel, economists with Emkay Global Financial Services, noted.
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