Buoyant Capital's Jigar Mistry on risks and opportunities in policy shift from capex to consumption

Citing the ongoing Bihar elections, he noted that some leaders are pledging employment and benefits far exceeding what is realistically deliverable.

While the shift in government focus from capital expenditure (Capex) toward consumption-oriented measures may bring opportunities, there could be some risks, according to Buoyant Capital's  Jigar Mistry. He made these comments during a conversation with Moneycontrol's N Mahalakshmi on The Wealth Formula Podcast.

“The transition from investment-led to consumption-led growth have some risks. It reduces potential GDP, and the shift takes time to materialize," he explained. State governments, Mistry said, are prioritizing election promises and social welfare schemes over infrastructure projects. Citing the ongoing Bihar elections, he noted that some leaders are pledging employment and benefits far exceeding what is realistically deliverable. “There are close to two crore households in Bihar, but total government jobs (central and state combined) amount to just under 70 lakh,” he said.

This trend, Mistry argues, is not limited to Bihar. A recent analysis of 16 states that recently went to elections shows that promised welfare spending often exceeds budget allocations and is sometimes higher than Capex commitments. Even though actual budgeted spending is less than the promises, Capex has still been crowded out, he noted.

Mistry also noted that there was a disproportionate impact of Capex on GDP. According to government data, every rupee spent on Capex has a potential GDP impact 2.5 times greater than spending on revenue expenditures or transfers. By shifting around 1.5% of GDP from Capex to consumption, India could be foregoing roughly 2.5% of potential GDP, translating to a 75-basis-point impact over three years.

He also pointed out that the transition of an economy from investment-led to consumption-led growth had its share of challenges. “China has struggled with this for a long period. People receiving additional income may save it, spend it, or even hide it. The effect on economic activity is uncertain and takes time to play out," he said.

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