By Kushal Kumar Singh, Partner, Deloitte Touche Tohmatsu India LLP
India’s economic landscape has been a subject of global interest, highlighted by its remarkable growth trajectory over the past few decades. Considering this sustained economic rise, the nation has embraced diverse strategies to foster development, with capital expenditure front-loading emerging as an important driver of progress.
This approach, characterized by an emphasis on substantial investments in infrastructure, industry, and public goods, has catalyzed economic growth and development, positioning India as an emerging contender on the global stage.
The journey towards sustained economic prosperity is dynamic and not just confined to one sector, demanding a unique understanding of the strategies that lie beyond the front-loading of capital expenditure. This can be achieved by doing a broader analysis of India’s economic growth trajectory, which explains the importance of front-loading capital expenditure and highlights various factors that influence the nation’s economic future.
Indian Government’s strategy for front-load capital spending influences the economic growth of the country in multiple areas. The long-term assets when backed by Government investments certainly have the capability to yield big results. Talking about economic growth, India’s Gross Domestic Product (GDP) grew by 7.7% in the last quarter (April-June 2023), its fastest expansion since April-June 2022.
Within the context of the Indian economy, Gross Fixed Capital Formation (GFCF) denoting the comprehensive sum of assets procured by producers during the accounting period has displayed a notable escalation, surging from INR 32.78 lakh crore in 2014-15 to INR 54.35 lakh crore in 2022-2023. Investment trends in India for 2023 manifest robust involvement from both the Government and private sectors, notably in infrastructure and manufacturing. Recently, the Ministry of Finance sanctioned INR 56,415 crores to 16 States through the ‘Special Assistance to States for Capital Investment 2023-24,’ introduced during the financial year 2020-21. This initiative has been undertaken in recognition of the substantial multiplier effect that capital expenditure exerts on the nation’s economic growth. To support this initiative, the central government has also proposed to increase the capital expenditure in FY22-23 to about Rs 10 lakhs crores which is about 33% more than the revised estimates for the previous year with Railways and Roads and highways being the biggest beneficiaries. As per the available data, the budget capital expenditure progress is on track and the government is expected to meet the targets.
Capital investment is vital for the accumulation of physical assets, augmenting a nation’s productive capacity, and thereby expanding its potential output, thus fostering economic growth. It’s evident that a substantial segment of GFCF is directed towards infrastructure projects. Investments encompassing in areas like transportation, energy, and utilities, are pivotal to economic development. The GFCF metrics are fundamental indicators reflecting the degree of investment in an economy’s productive assets, playing a pivotal role in shaping long-term economic growth, strengthening productivity, infrastructure development, technological advancement, and enhancing competitiveness.
In today’s era of heightened globalization, nations maintaining sustained capital investment levels have positive chances of maintaining competitiveness, attracting investments, and establishing global trade partnerships.
At present, India is experiencing a substantial structural reiteration fueled by various Government investment initiatives and development projects. These infrastructure initiatives are strategized to boost connectivity, cut short logistics expenses, and highlight India as a global economic player. India has been working towards the goal of creating a top-tier transport network that includes modern expressways, railways, new-age modern airports, and an advanced electric vehicle ecosystem.
Achieving this infrastructural milestone shall not only improve all segments of Indian society but also promote the country’s economic growth. Various initiatives such as ‘PM Gatishakti National Masterplan’ to boost infrastructure development in a timebound manner are taking India closer to its ambitious target of achieving a $5 trillion economy in the future.
India’s economic path combines strategic investment in infrastructure with a range of challenges and achievements. While capital expenditure front-loading is important, it’s just one part of the broader strategy for growth. Investment in infrastructure, innovation, and education is crucial for India’s goal of becoming a global economic leader. With determination, visionary planning, and ongoing progress, India is on track to secure a prosperous future for its people and establish itself as a key player in the global economy.
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