Private investment has lagged behind New Delhi for nearly a decade. (file)
Bengaluru:
India’s government is set to put the brakes on the rapid pace of capital investment growth in the coming fiscal year as a slowing economy limits spending power by weakening tax revenues, according to a Reuters poll of economists.
Food and fertilizer subsidies, which help two-thirds of India’s 1.4 billion people, will also be slashed, according to the survey.
Prime Minister Narendra Modi’s government has more than doubled capital expenditure since the 2019/20 financial year in a bid to make India a more attractive destination for global manufacturing. But private investment has lagged behind New Delhi by nearly a decade.
Now, the robust pace of government investment will slow to barely half of its previous rate in the fiscal year to March 2024, according to a 13-20 Reuters poll of 39 economists.
Capex will grow by about 17% to 8.85 trillion Indian rupees ($109 billion) in fiscal year 2023/24, from an estimated 7.50 trillion rupees in the current fiscal year, up about 35% from a year earlier.
“The government has shown a clear motivation to increase capex, and the absence of a strong recovery in private capex will make public capex particularly important,” said Sonal Verma, chief economist for India and Asia, ex-Japan, at Nomura.
Total public and private investment as a proportion of the economy has declined since 2014, when Modi’s Bharatiya Janata Party came to power.
Gross fixed capital formation, which is often used as a measure of domestic investment, has since grown at a compound annual rate of only 8%, down from 14% during the previous United Progressive Alliance government’s 10-year term. .
The ratio of that measure of investment to economic output has declined from a record high of about 36% in 2007/08 to about 29% in 2021/22.
While there are early signs of a modest pick-up in private sector investment, economists in the poll warned it could be derailed amid a global economic slowdown.
India’s economy, and therefore the government’s ability to raise revenue, is slowing down. Economists in the poll expect GDP to be 6.0% higher in 2023/24 than in 2022/23, while it is expected to be 6.8% higher than the previous year.
The survey also found that the government will cut food and fertilizer subsidies by 26% to Rs 3.7 trillion, from about Rs 5.0 trillion expected during the current fiscal.
Some economists in the survey cautioned against such a shortfall, as it would affect hundreds of millions of people in a country that is generally one of the worst for hunger.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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