What’s in Store for India’s Capital Expenditure in 2023 Budget?

The Beginning

The budget is the vehicle through which the government communicates its goals for the nation and its priorities. On February 1, 2023, the budget for this year was no different. The government has made it clear that investment-led growth is its main goal by focusing on capital expenditure (capex).

The Significance of Capex in Budget 2023

The budgeted central government capex is 3.3 percent of GDP and 4.5 percent if we include the grants to the states for creating capital assets. This is the highest capex spending by the central government in decades, with the hope that it will attract private investment. The government believes that private investment is the key to growth, and with the budget prioritizing investment, it is clear that the government is following this belief.

Also Read: Union Budget 2023: Key Highlights And Impact On Taxpayers

Capital Accumulation and Economic Growth

No nation has achieved greatness through consumption alone. Economic growth is largely dependent on capital accumulation, especially in the initial stages. All economies, regardless of ideology, require capital accumulation for growth.

Examples from Around the World

Countries such as China, South Korea, Japan, Thailand, Singapore, and Malaysia have had high levels of gross capital formation to GDP, with China maintaining above 40 percent since 1993. In contrast, India’s gross capital formation to GDP is estimated to be 31.7 percent in 2022-23, well below its peak of 39.8 percent in 2010-11. The government is trying to imitate the successful model of savings, investment, and exports, supported by a favorable demographic phase, seen in these countries.

Also Read: Budget 2023: Indian Government’s Budget For A New Era

Despondency in the Equity Markets

Despite the budget ticking all the right boxes for business and the markets, sentiment was affected by allegations against the Adani group. This has caused the BSE Infrastructure Index to sell off, and the Indian market has struggled.

Underperformance in the Indian Market

The underperformance of the Indian market is partly due to the high valuations in the market and partly due to the allegations against the Adani group. However, Indian banks have limited exposure to the Adani group, and the Indian market fundamentals are sound. The latest PMI data also pointed to another sharp expansion of private sector activity in January, indicating that the Indian economy is in good shape.

Conclusion

In conclusion, the budget of 2023 has emphasized the significance of capital expenditure, with the government’s priority on investment-led growth. With examples from around the world, it is clear that capital accumulation is crucial for economic growth. Despite some negativity in the market, the Indian economy remains in good shape, and the government’s emphasis on investment is a positive sign for the future.