On track for full capex this year, will frontload 60% in H1: Government Official

Capex is key to achieve multiplier impact on growth and employment

The Finance Ministry is on track to complete the country’s highest-ever budgeted capital expenditure, of Rs 10 lakh crore, in 2023-24. The ministry is aiming to frontload at least 60 percent of the spend in the April-September period, a top government official said.

“Capex is doing quite well. In Q1 (April-June), capex spend was close to 28 percent. Q2 capital expenditure utilisation is also doing well. In H1, the government will be looking at achieving a capex spend of more than 50 percent, hoping to touch 60 percent,” the official told Moneycontrol.

The Centre utilised 27.8 percent of its capex in the first half of this fiscal year, spending Rs 2.78 lakh crore as against Rs 1.75 lakh crore in the corresponding period of the previous fiscal year, according to Controller General of Accounts data.

The government is also frontloading the capex in the April-September period to fast-track the visible growth momentum as this is a pre-election year.

The frontloading of capex is crucial for the government as it seeks to boost growth and make up for the lag in private investment as global demand continues to be weak, impacting the export markets.

No restrictions

In her budget presentation, Finance Minister Nirmala Sitharaman had announced a 33 percent increase in capital expenditure for FY24, with a record Rs 10 trillion for infrastructure development, which is 3.3 percent of GDP.

No cash management guidelines or quarterly spend restrictions have been imposed on ministries this year in an effort to give the budgeted capital expenditure of Rs 10 trillion a push.

The government is not looking at any savings from the capital expenditure this year and expects the departments and states to absorb the extra expenditure, the official cited earlier said.

In FY23, the capex target fell short by a marginal amount. The Centre’s capital expenditure stood at Rs 7.28 lakh crore against the budgeted Rs 7.5 lakh crore.

Railways and roads can absorb the additional capex in FY24 as they form a big chunk of infrastructure growth. Road and other infrastructure projects are expected to spur economic activity, boost construction and create jobs. The segment accounts for about 8 percent of GDP and is the largest creator of direct and indirect employment, employing about 40 million people.

Also, the capex allocation for states in FY24 has been increased by Rs 30,000 crore to Rs 1.3 trillion.

Multiplier effect

Government capital expenditure has a strong multiplier effect with major forward linkages to sectors such as real estate, infrastructure and manufacturing, and backward linkages to steel and cement, among others.

A large amount of capex increases opportunities for private companies to participate in infrastructure projects, such as new roads and highways as well as railways, and in other social welfare sectors, such as in the drinking water and housing projects.

The capital spending push is also expected to induce demand for services and manufactured inputs from large industries and micro, small and medium enterprises (MSMEs), while helping farmers with better infrastructure.