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Capex at Rs 11.11 Lakh Cr: Can Govt’s 'Auspicious' Number Enhance Productivity?

Big budgetary capex during Modi 2.0 and the high Capex growth rate of 25.3% per annum is more myth than reality.

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Nirmala Sitharaman chose, supposedly an auspicious number, Rs 11,11,111 crore for Capital Expenditure (Capex) in the 2024-25 Interim Budget.

Capex has been the Unique Selling Proposition (USP) of budgets since 2021-22 growing at a stupendous annual growth rate of 25.30 per cent per annum in PM Narendra Modi’s second term.

The real growth and productivity of Capex have, however, been quite suspect.

Will the auspicious number improve Capital Expenditure productivity? What is there for the grand Indian Capex story when we dive deep into the Interim Budget 2024-25?


Government Opened the Budgetary Capex Spigot in 2021–22

The Modi government was not greatly enamoured with Capex in its first term or the first two years of its second term, depending on capital investments by private sector and public sector undertakings to push the growth accelerator.

The shock of COVID-19, the virtual bankruptcy of the Railways and National Highways Authority of India (NHAI), and the utter lack of 'animal spirits' in the private sector forced the government to take upon itself the task of pushing capital investment in 2021-22.

The government chose a three-pronged strategy for ramping up Capex:

  1. Substitute the internal and extra-budgetary resource (IEBR) Capex of the Railways and the NHAI

  2. Own up losses and provide funding to the ever-bleeding Central Public Sector Undertakings (CPSUs) like Air India and BSNL

  3. Push loans to state governments

Big budgetary capex during Modi 2.0 and the high Capex growth rate of 25.3% per annum is more myth than reality.

Capital Expenditure of the Modi Government.

(Source: Author)

The spigot was opened. The budgetary Capex zoomed — from Rs 4.27 trillion in 2020-21 to Rs 5.93 trillion in 2021-22, to Rs 7.40 trillion in 2022-23, and to Rs 9.50 trillion in 2023-24 RE [revised estimate] (see column two of the table).


Total Real Capex Did Not Increase Much

Increased budgetary Capex substituted the public sector IEBRs big time. From Rs 6.08 trillion in 2018-19 and Rs 6.42 trillion in 2019-20, the IEBRs-funded public sector Capex practically halved to Rs 3.26 trillion in 2023-24 RE. (see column four of the table).

The government, in a reversal of the prudent policy adopted in 2005-06, became the financier of state governments and began pushing long-term 50-year interest-free loans to them. The loans and advances portfolio of the central government increased at a faster clip of 38.38 per cent per annum. (see column three of the table).

The total central government and public sector Capex, which amounts to the real Capex of the Modi government, consequently saw a tepid annual growth rate of only 5.01 per cent per annum (see column five of the table).

Big budgetary Capex of Rs 30.45 crore during Modi 2.0 and the high Capex growth rate of 25.30 per cent per annum is more myth than reality.

Government Capex Has Been Quite Unproductive

It is axiomatic that capital investments drive economic growth.

For Capex to drive GDP growth, however, it must meet two conditions:

  1. Capex should be a genuine additional investment

  2. It should be productively measured in terms of Incremental Capital Output Ratio (ICOR)

As data from budget papers (provided in the table) show, on account of the massive substitution of public sector Capex by budgetary Capex, actual Capex growth turned out to be a measly 5.1 per cent. The Modi government's Capex binge actually fails the first test.

Capex gives a boost to GDP growth in two rounds.

  1. It engenders the production of goods, services, and machinery which go into building the capital asset

  2. When the constructed capital asset produces more goods and services

The government spent as much as Rs 21.19 trillion out of a total of 30.45 trillion of budgetary Capex on railways, roads, and defence (almost 70 per cent).

The Railways sector has not been able to expand passenger services or increase its share of freight despite massive Capex. The Gross Value Added (GVA) of the Railways has seen only a very tepid growth as it has kept the passenger fares practically unchanged.

Railways ICOR, consequently, has continuously fallen during the term of the Modi government.

The defence Capex, by its very nature, does not produce any economic output.


The equity support provided to Air India and BSNL was used to cover accumulated losses or for paying licence fees and other government dues. Instead of increasing its subscribers, BSNL has constantly lost customers across all markets – wireless, wireline, and internet.

This Capex is actually a lost Capex.

Capex incurred on building national highways has been the only real productive Capex – that too in both rounds. While the government does not build new services on the highways constructed with this Capex, the private sector has built numerous services around transportation, travel, restaurants, and others, adding to the GDP in a big way.

On the whole, the government's budgetary Capex binge has been quite unproductive.

Capex Growth Moderated in the 2024–25 Budget

After four years of more than 25 per cent annual increases in the budgetary Capex since 2021-22, the government has moderated the Capex growth in the 2024-25 budget.

The budgetary Capex of Rs 11.11 trillion is 16.93 per cent higher than the revised Capex of Rs 9.50 trillion in 2023-24 – only 11.1 per cent higher over 2023-24 (budget estimate).

Growth in loans and advances is higher at 19.79 per cent (Rs 1.72 trillion against Rs 1.43 trillion in 2023-24 RE). The public sector Internal and Extra Budgetary Resources (IEBR) funded Capex growth has slowed down to 5.16 per cent (Rs 3.43 trillion against Rs 3.26 trillion in 2023-24 RE).

As a result, the total central government and central public sector Capex (budgetary capex minus loans and advances plus IEBRs) at Rs 12.83 trillion has increased by 13.18 per cent only.

Railways, roads, and defence Capex together (Rs 6.96 trillion), on the contrary, have seen much smaller growth (only 5.21 per cent) in the 2024-25 Interim Budget, bringing down their share to only 62.7 per cent of the total budget.

The Railways Capex budget increased by only 5 per cent (from Rs 2.40 trillion in 2023-24 RE to Rs 2.52 trillion in 2024-25 BE). The road sector Capex is almost flat, recording a growth of only 2.92 per cent (from Rs 2.65 trillion in 2023-24 RE to Rs 2.72 trillion in 2024-25 BE). Defence capital outlay of Rs 1.72 trillion gets 9.4 per cent growth.

This seems to indicate a definite waning of interest for the first time in the last five years for these preferred Capex-guzzling sectors.

Auspicious or Not, the Quality of Capex Is Deteriorating

Where has the remaining Capex gone in the Interim Budget? Loans and Advances have increased to Rs 1.72 trillion, recording the highest growth of about 20 per cent over Capex of Rs 1.43 trillion in 2023-24 RE.

BSNL and MTNL have been provided with another whopping dose of Rs 82,084 crore which will contribute nothing to growth.

For reasons not mentioned at all, the government has decided to keep an unallocated lumpsum capital expenditure provision of Rs 70,449 crore in the budget of the Department of Economic Affairs (DEA).

What is this provision meant for? Only to keep Capex outlay high and take it to the auspicious number?

With the largest expansion seen in loans and advances, another big provision for the loss-making and non-value-producing equity support to BSNL, and the unspecified lumpsum provision for the DEA, the quality of Capex will definitely weaken further in the 2024-25 budget.

(The author is a former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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