The Indian government has announced a capital expenditure outlay of ₹11.11-lakh crore for FY24-25, marking an 11 per cent increase over the previous year’s budget announcement of ₹10-lakh crore. This significant increase is expected to return normal growth in government spending after a period of stellar expansion where capital expenditure grew at a rate of 26 per cent CAGR in FY19-24.
This increase in capital expenditure aims to rein in fiscal deficit and support the private sector to take up the capex baton. Private capex is expected to bounce back, especially with anticipated lower borrowing costs and improved balance sheets. As the borrowing needs of the government decrease, the private sector will have more opportunities for borrowing and investing in growth.
Moreover, private companies’ balance sheets show strength and improvement. The Article suggests that, with the contraction of public debt, yield to maturity should improve, leading to lower costs of borrowing for companies and lower consumption costs. With the government reducing its borrowing needs, private companies have room to take up the capex momentum.
The article also highlights the continued momentum in core sectors such as affordable housing, railways, roads, and logistics, supporting the case for demand growth in India Inc. The multiplier effect from investment in these core sectors is expected to drive further demand growth for private companies.
Overall, the expectation is for the private sector to take over from the government in terms of momentum in capex growth. The private sector has the balance sheet strength to take this forward. This development is significant as the private sector is expected to contribute to India’s economic growth and development in the coming years.
News Highlight :
– The government has announced a capital expenditure outlay for FY24-25 at ₹11.11-lakh crore, which represents an 11 per cent increase over the previous year’s budget announcement.
– This return to normal growth in spending is seen as a positive for the private sector to pick up the capital expenditure.
– Private capex is expected to bounce back, with lower cost of borrowing, improved balance sheets, and reduced government borrowing creating opportunities for private investment.
– Private companies’ balance sheets are in a strong position, with high return ratios and improved leverage metrics, which suggests room for further investments.
– Core sector momentum is expected to continue, with continued investment in sectors like affordable housing, railways, roads, and logistics supporting demand growth.
– The government has done the heavy lifting since covid-19 hit, and the private sector has the balance sheet strength to take it forward from here.
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