New Delhi [India: The Indian government has invested over ₹54 lakh crore in capital expenditure over the past 11 years, as per a report by Systematix Institutional Equities. This includes the budgeted ₹11.11 lakh crore allocation for FY25. However, despite this large-scale spending, concerns over weak private investment and rising unemployment persist.
Key Findings of the Report
The report highlights that ₹38 lakh crore of this capital expenditure was allocated post-COVID-19. In FY25, capital expenditure will constitute 23% of total government spending, a level last seen in FY04—when India witnessed one of its strongest private investment cycles. However, unlike then, private investment has not surged, despite the government’s massive infrastructure spending.
The report notes:
“The worries of lagging private capex and unemployment have persisted since 2012, and in the recent year, as the RBI’s KLEMS data and PLFS survey jointly suggest, it has culminated in an unprecedented surge in disguised unemployment and contraction in real wages.”
Concerns Over Limited Multiplier Effect
One of the major concerns raised is the lack of a significant multiplier effect from this high capital expenditure. In theory, large-scale government spending should stimulate private investment and accelerate economic growth. However, the expected boost in private sector investments has not materialized, leading to renewed calls for even greater infrastructure spending ahead of the Union Budget.
The report also warns of a shrinking middle-income segment, hinting at a structural slowdown in India’s long-term economic growth.
Policy Responses and Challenges
Over the past decade, the government has pursued two major economic strategies:
- Phase One (2014-2019): Focused on resolving bad loans, recapitalizing banks, cutting corporate taxes (2019), and improving business conditions through formalization and GST implementation.
- Phase Two (Post-2020): Large-scale infrastructure spending, especially on roads and railways, aimed at triggering private investment and creating a ripple effect in the economy.
Despite these efforts, the expected private investment surge has not occurred. Instead, while the government has reduced its fiscal deficit from 9.2% of GDP in FY21, concerns remain over the fiscal burden and the effectiveness of its spending strategy.
Balancing Fiscal Discipline and Growth
As the government prepares for the upcoming Union Budget, the challenge lies in maintaining fiscal discipline while stimulating private investment. While policymakers have adhered to a fiscal deficit reduction plan, the lack of private sector participation and worsening employment conditions raise concerns about India’s long-term economic prospects.
With increasing demands for higher infrastructure spending, the key challenge remains—how to make government investments more effective in driving private sector growth and ensuring sustainable economic development.