During the period of April-December, central public sector enterprises (CPSEs) and government agencies, including the National Highways Authority of India (NHAI) and Railways, have collectively invested Rs 5.51 trillion, achieving 75% of their combined capital expenditure target for the fiscal year 2023-24.
On a year-on-year basis, the capital expenditure (capex) of these entities grew by a robust 22.4% in the first nine months of the current financial year. In the corresponding period of the previous year, the growth rate was 19.3%.
The capex target for CPSEs and other agencies for FY24 was set at Rs 7.33 trillion, compared to Rs 6.62 trillion in FY23. The data includes select CPSEs with an annual capex target of Rs 100 crore and above, as well as other government organizations.
The increased public capex has contributed to an 11% growth in investment demand in the second quarter, exceeding the 8% growth in the first quarter of FY24. The investment rate, measured as Gross Fixed Capital Formation (GFCF) as a percentage of GDP, also rose to 35.3%, up from 34.2% in the same period a year ago.
This growth is attributed to higher capital expenditure at both the central and state government levels, as well as state-run entities and agencies. The central government’s capex, reaching 58.5% in April-November of FY24 against a target of Rs 10 trillion, has played a significant role in this.
Capital expenditure by state governments increased by 56% year-on-year in the first half of the current financial year, compared to a 2% rise in the corresponding period of the previous year, supported by capex loans from the central government.
Railways and NHAI, supported by substantial budgetary allocations, along with petroleum CPSEs, are the major contributors to public-sector investments, playing a key role in encouraging capex from other entities.
While the advance estimates of national income for FY24 indicate a rise in gross fixed capital formation to nearly 35% of GDP, questions arise about the sustainability of the same capex pace in FY25, especially considering the urgency of fiscal consolidation. Analysts express concerns that the Centre’s budget capex for the current fiscal year may fall short of targets, with potential slowdowns ahead of the approaching parliamentary elections. The government is banking on buoyant tax collections to adhere to the fiscal consolidation glide path.