INTERVIEW:Big capex push to continue in FY24, says Barclays’ Bajoria

Informist, Monday, Jan 16, 2023


–Barclays Bajoria: FY24 Budget may peg capex at 9 trln rupees

–FY24 capex likely to be 20% of total spending


By Aditya Saroha and Priyansh Verma


NEW DELHI – The Union Budget for the next financial year starting April may continue to see a push towards an increase in capital expenditure, as the government focusses its spending on the creation of assets with a high multiplier, said Rahul Bajoria, managing director and head of Emerging Markets Asia (ex-China) Economics, Barclays.   


"We expect capital expenditure to increase from the expected 7 trln rupees in the current financial year to 9 trln rupees in 2023-24," Bajoria told Informist in an interview.


This would translate into a 28.6% increase in the allocation for capital expenditure in 2023-24. This year's Budget had pegged capital expenditure at 7.5 trln rupees, up 24.5% from the previous year. On an average, the allocation for capital expenditure has increased 21.1% in the last three years.


"Effectively, it's about the spending mix; the quality of spending is likely to improve," Bajoria said.


As a proportion of the total spending, capital expenditure is likely to increase from the current 17% to about 20% in the coming financial year, Bajoria said.


The Budget for 2022-23 had pegged total expenditure at 39.45 trln rupees. Barclays expects the government to peg total expenditure in 2023-24 at about 46 trln rupees, up about 17% from the amount budgeted in 2022-23.


As of Nov 30, the capital expenditure incurred stood at 4.471 trln rupees, accounting for 59.6% of the Budget target. The government has repeatedly spoken about its commitment towards increasing capital expenditure in a bid to crowd-in private investment, lifting demand and boosting economic growth.


Finance Minister Nirmala Sitharaman will present the Union Budget for 2023-24 on Feb 1.



Bajoria believes a conservative approach towards revenue budgeting and the need to balance fiscal prudence and support growth are likely to be the key themes of the Budget.


Barclays expects the government to meet its fiscal deficit target of 6.4% of GDP in the current financial year ending March, and sees the 2023-24 Budget targeting a deficit of 5.8% of GDP.


In its first advance estimate of GDP growth in 2022-23, the National Statistical Office has projected India's nominal GDP to grow 15.4%, against the 11.1% growth estimated in the Budget. Nominal growth of 15.4% will pull down the fiscal deficit to 6.1% of GDP from the budgeted 6.4%. However, with total expenditure expected to rise substantially than total revenue, fiscal deficit is likely to stand at the budgeted level.


Barclays sees nominal GDP growth at 15.6% this financial year and 11.0% in 2023-24.


The government plans gradual consolidation to achieve the medium-term goal of bringing fiscal deficit down to 4.5% of GDP by 2025-26. "While the target is 'imminently doable', we should not expect a front-loading of that consolidation," Bajoria said.


A large part of the consolidation will be based on growth in tax revenues. So far this financial year, India's gross tax mop-up is 17.81 trln rupees, up 15.5% on year.


"I think fiscal consolidation won't be a challenge because one, nominal GDP base is widening and second, we don't see the subsidy increasing," Bajoria said.


To be able to spend 46 trln rupees in 2023-24, Bajoria said the government's gross market borrowings could be in the vicinity of 16-17 trln rupees. "There should be no material pressure as far as financing is concerned," he said.



In real terms, India's GDP should see a soft-landing in activity from 7.0% this financial year to 6% in 2023-24, Bajoria said, adding that demand conditions would, however, not weaken dramatically.


The National Statistical Office has also projected that the Indian economy will grow 7.0% in real terms in the current financial year ending March.


The moderation in growth will be on account of global headwinds and a slowdown in demand for exports, Bajoria said.


"Domestically, we are seeing some initial signs of pickup in capital expenditure in the private sector," Bajoria said. "Inflation is easing, and high-frequency indicators are holding up very well, indicating resiliency."


CPI inflation fell to a one-year low of 5.72% in December, staying under the upper limit of the central bank's tolerance band for the second straight month.


"There's a possibility the growth numbers are likely to remain very steady even with the pace of relatively weak external demand and that should probably be the underpinning factor for us as we think about growth dynamics over the next 6-12 months," Bajoria said. 



"I think it's too early to contemplate (repo) rate cuts in India, especially in an environment where the level of uncertainty around growth and inflation remains quite high," Bajoria said. "I think recent commentary from the RBI leadership indicates that it will still continue to maintain a relatively cautious and hawkish bias in the policy."


As CPI inflation stayed below 6% in December, for the second consecutive month, analysts expect the RBI's Monetary Policy Committee to pause the current cycle of repo rate hikes after an increase of 25 basis points in February.


"My overall sense is that inflation will be declining through 2023, but then it will be declining because imported price pressures – which have been key factor behind high inflation through 2021 and 2022 – have started to subside at the margin," Bajoria said.


Since May, the Monetary Policy Committee has raised the repo rate by 225 bps to 6.25% in a bid to curb inflation.


"…But, the bar for cutting rates is 'quite high'," Bajoria said.  End


Edited by Avishek Dutta


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