New Delhi [India], January 31 (ANI): The Indian government has spent over Rs 54 lakh crore on capital expenditure in the past 11 years, according to a report by Systematix Institutional Equities.
This includes the budgeted allocation of Rs 11.11 lakh crore for FY25. Despite this massive spending, the report added that the concerns over weak private investment and unemployment persist.
The report also highlighted that Rs 38 lakh crore of the total capital expenditure was allocated after the COVID-19 pandemic. In FY25, capital expenditure will account for 23 per cent of total government spending, reaching levels last seen in FY04. Back then, India experienced one of its strongest nine-year private investment cycles.
However, the current situation is different, as private investment has not picked up, despite the government’s heavy spending on infrastructure.
It said “The worries of lagging private capex and unemployment have persisted since 2012, and in the recent year, as the RBI’s KLEMS data and PLFS survey jointly suggest, it has culminated in an unprecedented surge in disguised unemployment and contraction in real wages”.
A major concern raised in the report is the lack of a significant multiplier effect from this high capital expenditure. Ideally, large government spending should stimulate private investment and economic growth.
However, the expected boost in private sector investments has not materialized, leading to renewed calls for even higher infrastructure spending ahead of the Union Budget.
The report stated that companies have also raised concerns about a shrinking middle-income segment, pointing towards a structural slowdown in India’s long-term economic growth.
Over the past decade, the government has focused on two major policy responses to address economic challenges. The first phase involved steps such as resolving bad loans, recapitalizing banks, cutting corporate taxes (in 2019), and improving business conditions through formalization and GST implementation.
When these measures failed to boost private investment, the government introduced a second phase of stimulus–massive infrastructure spending, especially on roads and railways–particularly after the pandemic. Policymakers hoped this would trigger private investment and create a ripple effect on economic growth.
However, the report suggests that this strategy has not delivered the expected results. Instead of driving growth, it has led to a fiscal burden, even though the government has maintained fiscal discipline, reducing the deficit from its peak of 9.2 per cent of GDP in FY21.
As the government prepares for the upcoming Union Budget, the report highlights the challenge of balancing fiscal discipline with the need to stimulate private investment. While the government has adhered to its fiscal deficit reduction plan, the lack of a strong response from private investors and worsening employment conditions raise concerns about India’s long-term economic prospects.
With growing calls for increased infrastructure spending, policymakers must find ways to make government investments more effective in driving private sector participation and sustainable economic growth. (ANI)
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