India’s government is set to slow down the pace of capital investment growth within the upcoming fiscal year as an economic slowdown curbs spending power by weakening tax revenue.
 
This is according to a Reuters survey of economists.
 
Since the 2019/20 fiscal year, capital spending by the Indian government has more than doubled, in attempts to make the country more attractive for global manufacturing. 
 
The strong pace of government investment is now set to decelerate to half the previous rate in the fiscal year to next March, as per the Reuters news agency poll carried out between 13th and 20th January.
 
Capex is forecast to rise in the 2023/24 fiscal year to around 17% to 8.85 trillion Rupees ($109 billion), from a projected 7.50 trillion Rupees in the current fiscal year, which is approximately up 35% compared to the previous year.
 
“The government has shown an express motivation to ramp up capex, and the expected absence of a robust recovery in private capex will make public capex particularly important in FY24,” said Nomura chief economist for India and Asia ex-Japan, Sonal Varma.
 
Total public and private investment as a proportion of the economy has fallen since 2014, the report adds, when Prime Minister Narendra Modi's government came to power. 
 
Typically used as a gauge for domestic investment, gross fixed capital formation has increased at a compound annual rate of just below 8% since then, a decline from 14% during the previous United Progressive Alliance government.
 
Furthermore, despite indications of a modest rally in private sector investment, economists in the Reuters poll cautioned it could be put off course by a global economic slowdown.
 
Economists surveyed in the poll forecast GDP to rise 6.0% higher in 2023/24 than in 2022/23, when it’s expected to be 6.8% higher than the previous year.
 
The findings also revealed India’s government would cut food and fertiliser subsidies by 26% from almost 5 trillion Rupees to 3.7 trillion during the present fiscal year.