India can sustain current levels of growth with or without private capex: Finance Secretary

Finance Secretary TV Somanathan

With or without private capital expenditure, India has enough firepower to sustain the rate of growth at the current levels, Finance Secretary TV Somanathan told Moneycontrol in an interview on February 2.

The government has not taken any steps that will restrain growth to a rate below what it is this year and private capital expenditure can only increase this growth rate further, Somanathan said citing the increase in total expenditure as well as on the spending on infrastructure for next fiscal.

India's statistics ministry has pegged real growth for 2023-24 at 7.3 percent following the stunning GDP data released in November 2023 which showed the Indian economy expanded by 7.6 percent in July-September.

While the Budget does not make a forecast for real GDP growth, the finance ministry said in a report on January 29 that the Indian economy's growth rate may be close to 7 percent in 2024-25. "The strength of the domestic demand has driven the economy to a 7 percent plus growth rate in the last three years," the ministry said in a report authored by officials from the office of the Chief Economic Adviser V Anantha Nageswaran.

"Without the private sector coming forward, we have achieved the growth rate we have achieved the growth rate we have achieved. We will continue to be spending more next year then we spent this year," Somanathan said.

The government 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 and 16.9 percent higher than the revised estimate, the pace of increase is relatively modest. This target was increased by a whopping 33 percent to Rs 10 lakh crore in 2023-24.

Somanathan, however, said that the 11-percent increase in capital spending for FY25 is infact significant given that it comes on the back of a lower nominal GDP growth of 8.9 percent in the current financial year.

"So this would be another year when both as a share of the Budget and as a share of GDP, capex is going up. And it is going up beyond a very high expansion in the previous year," he added.

After two years of very high nominal growth – thanks to high inflation and a favourable base – in 2021-22 and 2022-23 helped the Centre rapidly bring down its fiscal deficit from 9.2 percent in 2020-21, nominal growth in 2023-24 fell sharply to 8.9 percent as per the statistics ministry's first advance estimate. This is well below the 10.5 percent the finance ministry had assumed in the 2023-24 Union Budget.

That the pace of growth in government capex may slowdown going ahead was widely expected. Infact, Nageswaran way back in December 2022 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.