Fri Jan 31 10:13:56 UTC 2025: ## India’s Capital Expenditure Lags Behind Target, Raising Growth Concerns

**NEW DELHI** – India’s ambitious infrastructure-led growth plan is facing headwinds as capital expenditure (CAPEX) lags significantly behind the budgeted target for the current fiscal year (FY25), raising concerns about its impact on economic growth. While the government has significantly increased CAPEX in recent years – a threefold increase from ₹4.5 lakh crore in 2016-17 to a projected ₹15 lakh crore in 2024-25 – spending has fallen short of expectations.

Data from the Controller General of Accounts reveals that up to November 2024, CAPEX stood at only 1.6% of GDP, compared to 2.0% during the same period in 2023. This represents just 46.2% of the budgeted ₹11.1 lakh crore, leaving a substantial shortfall to be covered in the final quarter. While the government has urged ministries to accelerate spending, the challenge remains significant, particularly given the historical tendency for CAPEX to bunch up in the final months of the fiscal year.

Studies, including research by the Reserve Bank of India (RBI), consistently demonstrate the high multiplier effect of capital expenditure on economic output – significantly higher than that of revenue expenditure. The RBI study found that the impact multiplier for capital outlay is between 2.13 and 2.71, compared to 0.60 to 1.74 for revenue expenditure. The cumulative multiplier for capital outlay is also far greater, highlighting its sustained positive impact on GDP.

However, the current slowdown is partly attributed to a contraction in key sectors. Road infrastructure and defence spending have experienced sharp declines, impacting overall CAPEX. Additionally, the absorptive capacity of some sectors seems to be reaching its limit, suggesting a need for diversification. Transfers to states for capital assets, crucial for regional development, also lagged behind projections.

Experts suggest that while the government should continue prioritizing CAPEX, addressing the administrative capacity constraints within some ministries is crucial. They also emphasize the need to identify new avenues for capital investment, particularly in areas such as urban infrastructure, affordable housing, and public transportation, to maintain the momentum of infrastructure-led growth and avoid a potential stagnation of the economy. The situation highlights the ongoing challenge of translating ambitious economic plans into efficient on-the-ground execution.

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