New Delhi: India’s investment story still seems to be driven by the public sector, with central and state government capital expenditure (capex) growing in double-digits in the April to September period this fiscal, an analysis by Bank of Baroda has found.
The analysis also found that private sector investment has not only grown slower — in single-digits — but is also limited to a few sectors, and that elections in five states had not offset the capex priority in favour of revenue expenditure, which includes welfare schemes.
Bank of Baroda last week published two separate studies, on the state of government capital expenditure and private sector investment, in the first half of this financial year.
The analysis found that the central government spent Rs 4.9 lakh crore on capex in the April-September 2023 period, which is 49 percent of the budgeted Rs 10 lakh crore for the year, and 29 percent higher than the amount spent in the first half of the last fiscal.
“The Centre remains on track on delivering its budgeted target of Rs 10 lakh crore,” the Bank of Baroda report said. “In comparison, based on data available for a total of 23 states, state capex has increased by a sharp 52.8 percent in the same period (April-September 2023, compared to the same period of the previous fiscal).”
However, even though capex by states has grown sharply, it is still well short of the amount these states budgeted for the year.
According to the data, while these 23 large states had budgeted Rs 8.09 crore of capital expenditure in FY24, they have spent Rs 2.63 lakh crore or 32.3 percent of this amount in the first half of the year.
That said, this performance is still better than last year’s, when the states had spent only 25.2 percent of their budgeted amount in the first half of FY23.
“Capital expenditure is known to have a multiplier effect, which can crowd in private investment,” the report said. “So far, the private investment picture has remained hazy, and hence the government has been left to do the heavy lifting on this front.”
Private investment remains patchy & sluggish
“The picture emerging is that (private) investment is not broad-based and is concentrated in the infra space and some services like hospitality and retail,” the second Bank of Baroda report, on private investment, said. “But more than half the industries are still to witness a significant turnaround.”
The report acknowledged that it is tricky to gauge private investment since looking at the finances raised by the private sector does not provide a complete picture, and data on investment announcements is also skewed.
For example, the data shows that 83 percent of investment announcements made during the April-September period of this fiscal came from the transport, power, and chemicals sectors, with transport itself contributing a 57 percent share.
Instead, the Bank of Baroda analysts took a third approach, and looked at how the gross fixed assets and the capital work in progress have grown over the period.
Gross fixed assets is the price a company pays for its fixed assets, and capital work in progress is the amount spent on the construction of new fixed assets.
A combination of the two provides a reasonably accurate picture of how much a company has spent on purchasing or constructing its assets, and how that has changed over time.
The bank’s analysis shows that the stock of fixed assets held by a representative sample of 1,420 companies has grown just 3.6 percent in September 2023 over its level in March 2023 (that is, growth in the first half of the financial year), and by just 7.9 percent compared to its level in September last year (year-on-year growth).
Most of the sectors that did better than average were in the infrastructure space, such as crude oil, iron & steel, construction materials, chemicals, and capital goods.
On the other hand, a number of key sectors saw investment growth that was not only lower than average, but also lower than their own performance last year. These included power, telecom, banks, automobile & ancillaries, healthcare, IT, textiles, agriculture, realty, and plastic products.
“It can hence be concluded that investment activity is not yet broad-based,” the study concluded. “It is in limited pockets. In terms of overall share, around 43 percent of the industries by size of fixed assets performed better than the average. Five major sectors however continue to trail, which includes power and telecom.”
State-wise disparity in investment
The analysis on state government spending found that there was a lot of disparity in the capex levels of states.
“Telangana has performed remarkably well in terms of capex spending this year and has met 60.9 percent of its FY24 target, which is much higher than 26.5 percent in the same period last year,” the report said, adding that the poll-bound state’s capex in the first half of the financial year was over 190 percent higher than what it had spent in the same period the previous year.
Andhra Pradesh and another poll-bound state, Madhya Pradesh, were the other top performers in terms of capex. Andhra Pradesh’s capex was 142 per cent higher in April-September 2023 than that of the same period last year, while Madhya Pradesh’s was up 60.4 percent over the same period.
Apart from these three, six other states achieved more than 30 percent of their budgeted capex in the first half of the financial year: Bihar, Kerala, Tamil Nadu, Sikkim, Himachal Pradesh and Rajasthan.
However, the report made particular mention of decline in capex spending by Karnataka.
“Among major states, the performance of Karnataka continues to remain worrisome,” the report said. “Capex spending by Karnataka has declined by around 32 percent in the first half of FY24. As a percentage of BE (budget estimates), the actual capex spending has been lower at just 16.9 percent compared with 33.3 percent in the same period last year.”
The report, however, acknowledges that this is in keeping with the Karnataka government’s stance on reducing capital spending and focusing on revenue expenditure instead.
It also said that it was a heartening sign to see that the upcoming elections in five states had not derailed the capex priority in favour of revenue expenditure, which includes subsidies and “freebies”.
“Given the fact that five states accounting for around 20 per cent of the budgeted capex for FY24 are going to the polls this year, it is encouraging to note that capex spending has continued at a robust pace and has not suffered due to likely predisposition towards higher revenue expenditure in the run-up to the elections,” the report said.
(Edited by Nida Fatima Siddiqui)
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