Government capex will bring down logistics cost, and improve efficiency: Majumdar

Capex push to improve efficiency: Finance Minister Nirmala Sitharaman will present the interim budget 2024 on February 1, all economists and experts are hopeful that the government will push the pedal on India’s growth story again by allocating record funds for capital expenditure.

Rumki Majumdar, director, and economist at Deloitte India expects that the government’s prioritisation of capital expenditures is likely to help bring down logistics costs and improve economic efficiencies.

“The fact that the government is raising the share of its expenditure towards highways, railways, and ports bodes well for a strong infrastructure that will crowd in private investment and aid growth,” Majumdar told Republic Business.

The central government in the last few years has been allocating record funds for capital expenditure. The allocation to Capex has risen drastically from Rs 4.1 lakh crore in FY21 to Rs 10 lakh crore in FY24.  According to the experts, it is the government capex that is driving India’s growth.  

In addition to capex, all economic watchers are hopeful that robust tax collection will help the government in meeting the fiscal deficit target comfortably.

Concurring with experts, Mazumdar expects that the center will meet its fiscal deficit target of 5.9 per cent of GDP for FY2023-24. “The government has adhered to the fiscal consolidation path despite the economic challenges,” she added further.  Experts expect the target for this somewhere between 5.3 to 5.4 per cent of GDP. However, the long-term fiscal deficit target stands at 4.5 per cent to be achieved by FY26.  

The key question is whether the tax collection momentum will remain the same going forward and will continue providing comfort.

“With digitisation, it will become easier to monitor tax collection and plug loopholes. Rising revenues from GST and improved tax collection are likely to improve government resources and its ability to allocate more towards capex building. As the economy gains momentum, it will result in higher tax collection,” Majumdar said.

On the growth front, Majumdar believes that the growth outlook remains robust. She believes that India will grow at 7.2 per cent this fiscal. She added that Inflation may remain high as economic activity gains strength and expects prices to fall by the second half of the year.

The growth projection of 7.2 per cent by Majumdar is a bit higher than the estimated growth of RBI which stood at 7 per cent. But her growth projection is in line with the First Advance Estimate of GDP put out at 7.3 per cent by the National Statistical Office.