In a recent interview with Moneycontrol on February 2, Finance Secretary TV Somanathan asserted that India’s growth trajectory remains robust, irrespective of private capital expenditure. Somanathan highlighted the noteworthy 11-percent surge in capital spending for FY25, deeming it significant against the backdrop of a modest 8.9 percent nominal GDP growth in the current financial year.

Sustainable Growth Amidst Diverse Capital Scenarios

Somanathan emphasized that India possesses the intrinsic strength to sustain its current growth levels, whether or not there is an influx of private capital expenditure. The government’s commitment to fostering growth is evident, with no measures taken to curtail this year’s growth rate. Moreover, private capital expenditure, if mobilized, has the potential to amplify the existing growth momentum, given the increased total expenditure and infrastructure investments slated for the next fiscal year.

Projections and Economic Momentum

India’s statistics ministry projects a real growth of 7.3 percent for 2023-24, building on the impressive GDP expansion of 7.6 percent in July-September 2023. While the Budget refrains from offering a precise forecast for real GDP growth, the finance ministry, in a report on January 29, suggests that India’s economy may approach a 7 percent growth rate in 2024-25. The report attributes this growth to the robust domestic demand, steering the economy towards a consistent 7 percent plus growth rate over the last three years.

Achieving Growth Without Private Sector Involvement

Somanathan underlined India’s achievement in sustaining a commendable growth rate without significant private sector participation. “Without the private sector coming forward, we have achieved the growth rate we have achieved. We will continue to be spending more next year than we spent this year,” he affirmed. The government’s commitment is further evidenced by the allocation of Rs 11.1 lakh crore as capital expenditure for the next fiscal year, as disclosed by Finance Minister Nirmala Sitharaman in her budget speech on February 1.

Capital Expenditure Dynamics

While the 11.1 percent increase in capital spending for FY25 might seem moderate in comparison to the previous year’s 33 percent surge, Somanathan argues its significance. This surge comes against the backdrop of a lower nominal GDP growth of 8.9 percent in the current financial year, making it a notable increase both as a share of the Budget and as a share of GDP.

“After two years of very high nominal growth, the pace of government capex may slow down. This is expected, given the sharp decline in nominal growth to 8.9 percent in 2023-24,” said Somanathan. The fiscal discipline exhibited in the previous two years, coupled with the challenging economic conditions, has necessitated a more measured approach to public capital expenditure.

In conclusion, India stands resilient on its growth trajectory, with or without substantial private capital infusion. The government’s strategic allocation of resources and commitment to sustained growth positions the nation as a formidable player in the global economic landscape.