‘BOLD’ CAPEX A TRIGGER FOR PVT FLOWS

Fitch Ratings too assesses the continued emphasis on capex investment, with a further 11 per cent spending increase as supportive of the growth outlook in FY25, which it pegs at 6.5 per cent. Strong capex should, if implemented as planned, reduce infrastructure bottlenecks and improve medium-term growth potential. “We believe India is well-placed to sustain higher rates of growth in the medium term relative to many of its peers, with the capex drive helping to underpin this view,” says a Fitch Ratings expert.

A key factor for the sustained increase in capex spending in the Modi Government is the tepid pace of growth of private capex. “Over the last 2-3 years, private capex was weak, so public capex stepped in,” says Sonal Varma, Managing Director, Chief Economist - India and Asia, Nomura. The pace of increase in capex will now slow slightly in FY25, rising 16.9 per cent y-o-y in FY25 versus 28.4 per cent in FY24, suggesting less of a growth contribution from public capex in FY25. “Private capex is now likely to pick up and government slowly stepping back to prevent crowding out,” says Varma. Jagannarayan Padmanabhan, Senior Director, CRISIL Market Intelligence and Analytics says the Government has indirectly signalled the need for greater private sector participation to support growth in core sectors like roads and railways which continue to garner a lion’s share of the proposed expenditure this year. “That could mean asset monetisation could gather pace in the coming months,” says Padmanabhan. Despite the moderation in capex growth, the impact on growth is positive. The focus on infrastructure development is expected to be multiplier with increased production capacity adding to the growth of manufacturing sector in the economy. Take Railways, a win-win scenario for industry and the common man. For the first constituency, three major economic railway corridor programmes identified under PM Gati Shakti including the energy, mineral, and cement corridors, port connectivity corridors, and high traffic density corridors mean improved logistics efficiency and reduced cost.

For India’s business community, all this will have a significant impact on the country’s markets enhancing various projects, thereby leading to increased business and employment opportunities. Of critical importance is the creation of logistics corridors and improved railway cargo handling, which says Israr Ahmed FIEO President (Officiate) will simplify trade operations, further giving boost to international trade, especially exports and imports. A State Bank of India (SBI) Securities report says higher allocation for NHAI projects, Har Ghar Jal along with 3 economic corridors are expected to not only drive the demand for cement and steel but also to help generate employment for millions.mukesh Aghi- President and CEO, USISPF also believes that the 2024 Budget increase in capex with prioritised funding for infrastructure projects of USD 130 billion for roads, rails, ports, and airports are investments that will help attract private investment in these sectors, including foreign direct investment from the United States. At the same time, railway modernisation with plans to convert 40,000 railway bogies to Vande Bharat Standard will enhance safety, security and comfort. Other focus capex areas for FY25 is solar, hydrogen, nuclear, defence, housing, roads, irrigation, auto, electronics and semiconductor. Rural development capex with enhanced budgetary allocation for a number of central government schemes like MGNREGA, PMAY, education, health, Jal Jeevan Mission, PMGSY, PMKSY, Blue revolution and recently launched Pradhan Mantri Suryodaya Yojana to build 1 crore roof top solar power are decisive steps towards inclusive growth.

It is this ‘‘quality of expenditure that stands out as a unique feature of the Budget, says ASSOCHAM Secretary General Deepak Sood. The capital expenditure of Rs 11.11 lakh crore with an increase of nearly 17 per cent over the revised estimates of the previous fiscal, is a testimony of the government’s determination to invest heavily in infrastructure build-up,” notes Sood.

The green energy agenda of the country gets a boost with plan for enhanced coal gasification and liquefaction capacity of 100 MT by 2030 and phased mandatory blending of compressed biogas (CBG) in compressed natural gas alongwith viability gap funding (VGF) for offshore wind project up to 1GW as a welcome development to achieve 140 GW wind energy capacity by 2030. The capex has many sectoral and long-term implications. According to Aniket Dani, Director-research, CRISIL Market Intelligence & Analytics, the cumulative incentive outlay under the Production-linked Incentive (PLI) scheme is likely to exceed Rs 23,000 crore by fiscal 2025. Given the nature of this capex, a significant portion of the incentives will be back-ended and may peak around fiscal 2027. Incentives over the scheme period will total Rs 1.9 lakh crore.

While incentives between fiscal 2022 and fiscal 2025 will be led by mobiles, auto and pharmaceuticals, investment in relatively complex sectors such as ACC (advanced chemistry cell) batteries and solar photovoltaic modules will drive PLI disbursements from fiscal 2026. Cumulatively, the scheme will lead to incremental capex of Rs 3-3.5 lakh crore, of which Rs 1 lakh crore has been realised till November 2023, projects Dani.

Similarly in aviation, the Government may have allowed capex opportunities for developers to trend up. “Stress on new airport development in line with previous goals of taking the number of airports to 220 from 149 currently is a positive for both airport and airline sectors,” Dani points out.

This will help increase geographical penetration of air travel in the country, bringing many non-metro cities into India’s flight map. This will help meet the increasing demand for air travel emanating from the rising share of middle-class population in the country.