India Economy Watch - Public Sector Capex Back To The Pre-Covid High In FY24P: Motilal Oswal

Motilal Oswal Report

It is widely known and acknowledged that the total investment (i.e., capex) of the Central government has increased rapidly in the past three years. Excluding loans and advances and equity infusion into public sector enterprises, the Central government’s capex posted a staggering 32% CAGR in the last three years and is estimated to be Rs 7.3 trillion in FY24P, up from Rs 3.2 trillion in FY21.

Although this is highly appreciated, we have highlighted numerous times (see here or here) that this is largely a reallocation of capex from the Central PSEs (or CPSEs) to the fiscal accounts.

On an aggregate basis, the combined capex of CPSEs (excluding Food Corporation of India, FCI) and the Central government is likely to be 3.5% of GDP in FY24P, compared to the average of 3.7% of GDP in the 2010s decade.

This is because, although Center’s capex has risen to 2.5% of GDP in FY24P from 1.5% in the 2010s decade, CPSEs’ capex has declined to 1% (based on revised estimates, REs) from 2.2% of GDP earlier. This re-allocation, however, could have had a positive impact on investment efficiency.

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