The Indian economy was bogged down by the pandemic, however, there has been a quick revival from the slump on the back of public investment, which has resulted in a rebound in gross fixed capital formation (GFCF) in FY22. The economy may grow at a higher rate in the longer term if capital expenditure comes in with its strong multiplier effect, according to CareEdge. At 60%, consumption is the major contributor to India’s GDP. However, at the current juncture, this can only offer short-term boosts to the economy. In order to achieve a high growth trajectory, the government’s strong capex push should help as it will provide an upswing in the investment cycle with its strong multiplier effect.
“The centre’s strong capex push should help in an upswing of the investment cycle in the economy. The state governments have also budgeted for a strong capex growth in FY23. While the capex by the state governments is weak so far, it could improve in the coming months with the disbursements of interest-free loans by the Centre,” said Rajani Sinha, Chief Economist, CareEdge. As far as the private sector is concerned, there has been deleveraging in the last few years. “Now with the capacity utilisation level exceeding 75%, the ground is set for pick up in the investment cycle. The easing of commodity prices and inflation is another factor supportive of a pick-up in the investment cycle. The most critical aspect now would be the sustenance of demand recovery that we are witnessing,” Sinha added.