Capex allocation to increase by 8-10% in upcoming budget

Finance Minister Sitharaman presented an interim budget in February 2024, and the newly elected government is expected to declare a full budget within a month of taking office. An increase in Capex is anticipated due to surplus cashflows. The interim budget allocated Rs. 11.11 lakh crores for Capex, reflecting a year-on-year increase of only 11.11%, compared to 35.9% in the previous year. It is expected that the centre will allocate an additional Rs. 1 lakh crore to Capex, approximately 10% more than the budgeted figure.

Surplus cashflows

• Officials have confirmed that tax collections and non-tax revenues will be higher than centre’s expectations.
• The RBI transferred a surplus of Rs. 2.1 Lakh crores to the Central Government. A part of this is expected to be used towards infrastructure development and capex spending

The surplus cashflows will aid the government to increase its Capex outlay by around 10%. A higher increase can not be anticipated as Government is also focussed on reducing the Fiscal deficit to 5.1% in FY25 from ~5.8% in FY24.

On 15th May 2024, Finance Minister Nirmala Sitharaman quoted on her twitter handle, “Spending on infrastructure not only boosts GDP growth through its multiplier effects on consumption and investment but also improves the long-term efficiency of the economy by reducing logistical constraints.

A NIPFP study points out that every Rupee directed towards capital expenditure in India increases economic output by ₹4.8.

The alignment in thoughts of the Government towards Capex along with the surplus in cashflows will translate into an additional budget for capex. We have to wait and watch , what enfolds with the election results and newly formed government’s policies for FY25.