Capex back at front & centre of govt’s policy play as private sector watches from sidelines

The Indian government is closely monitoring its capital expenditure (capex) as private investment remains sluggish, a trend exacerbated by global uncertainties linked to US tariffs. In the first two months of the fiscal year, the Centre has recorded a notable increase in spending, with 20% of its annual allocation utilised, compared to only 13% during the same period last year, ToI reported on July 21 citing official data.

Over the past five years, the government’s capital expenditure has served as a crucial policy instrument aimed at stimulating economic growth. The rationale is that increased public spending will create demand for goods and services, leading to job creation and encouraging private investment.

However, despite this proactive approach, the private sector remains hesitant, with investments primarily seen in sectors like cement and steel, where companies are responding to demand generated by government initiatives in infrastructure.

Certain segments, particularly electronics, are experiencing growth due to schemes like the Production-Linked Incentive (PLI). Yet, overall capacity utilisation in various industries is not sufficiently high to warrant significant new investments.

In sectors such as automobiles and energy, the transition towards greener technologies has also contributed to delays in investment decisions.

Government officials acknowledge the current weakness in private investment and are exploring strategies to enhance economic activity. There are discussions about increasing capex in areas with potential for higher absorptive capacity.This could involve directing funds towards urban infrastructure projects, with planned discussions among the finance ministry and other government departments in the coming months.Looking ahead, the government is committed to maintaining a strong focus on capital expenditure, particularly given the anticipated economic growth in the years to come. For the current fiscal year, the Centre has set a capex budget of Rs 11.4 lakh crore, with almost half earmarked for roads and railways.

The hope is that as public investment continues to rise, the private sector will eventually follow suit, leading to a more robust and self-sustaining economic environment.