Government likely to tap brakes on capex growth, key subsidies

Now, that robust pace of government investment is set to slow to barely half its previous rate in the fiscal year to March 2024, according to the Jan 13-20 Reuters poll of 39 economists.

Capex is set to increase in fiscal 2023/24 by about 17 percent to 8.85 trillion Indian rupees ($109 billion), from an estimated 7.50 trillion rupees in the current fiscal year, itself up roughly 35 percent on a year before.

"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," noted Sonal Varma, chief economist for India and Asia ex-Japan at Nomura.

The total of public and private investment as a proportion of the economy has declined since 2014, when Modi's Bharatiya Janata Party swept to power.

Gross fixed capital formation, often used as a measure for domestic investment, has risen at a compound annual rate of just under eight percent since then, down from the 14 percent during the 10-year term of the previous United Progressive Alliance government.

The ratio of that measure of investment to economic output has declined from a record high of nearly 36 percent in 2007/08 to about 29 percent in 2021/22.

While there are early signs of a modest pick-up in private sector investment, economists in the poll warned a global economic slowdown underway could derail it.

India's economy, and therefore the government's ability to lift revenue, is slowing. Economist in the poll expect gross domestic product to be six percent higher in 2023/24 than in 2022/23, when it is expected to be 6.8 percent higher than in the previous year.

The poll also found the government would cut food and fertiliser subsidies by 26 percent to 3.7 trillion rupees from almost 5.0 trillion rupees expected during the current fiscal year.

A few economists in the poll cautioned against such a reduction, because it would affect millions of people in a country which typically ranks as one of the worst for hunger.