Silhouette of Engineer and worker on building site, construction site at sunset in evening time. istock photo for BL
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The upcoming general elections and the government’s fiscal consolidation hopes for the next two years could lead to a moderation in public capex growth plans in the upcoming Interim Budget for 2024-25.
The Centre has committed to bring down its fiscal deficit to 4.5% of GDP by 2025-26, from a target of 5.9% of GDP this year. India Ratings said on Tuesday that the Union government’s capital expenditure growth is expected to slow down to 12% in 2024-25 from 37.4% laid down in this year’s Budget.
While the rating firm expects capex growth to end up at 31.4% in 2023-24, it reckoned that fresh capex next year may slow down due to multiple factors, including the pickup in private capex in a few sectors, the forthcoming elections in April or May and the fiscal consolidation goal for 2025-26.
“Capex and fiscal consolidation path followed in the vote on account would be monitored closely, given their impact on growth and interest rates,” said Dhiraj Relli, managing director and CEO at HDFC Securities, who noted that a balance will have to be struck as higher capex could postpone the fiscal consolidation journey.
“Since 1989-90, there have been eight instances where the government has reduced the fiscal deficit by over 140 basis points (bps) of GDP over two years. [One bp equals 0.01%) We, therefore, believe such a reduction in two years is possible but not easy. Much would depend on the macro environment and tax buoyancy,” Devendra Kumar Pant, chief economist at India Ratings said.
Mr. Relli said the Centre is likely to stay on the fiscal course-correction glide path in the Interim Budget, while shunning populist spending. “While sops for the poor and farmers, two out of four castes (as stated by Prime Minister Narendra Modi) have already been announced time, some sops for the other two ‘castes’ (women and youth) could be announced with minimal impact on deficit,” he said.