The public Capex cycle has turned the corner, with Central and state capital investment virtually crossing FY20 levels, expanding faster than the gross domestic product rate, according to a report, indicating a lasting rebound to pre-pandemic levels. According to a Crisil NSE -0.30 percent analysis released on Thursday, while the Central Capex has already crossed the pre-pandemic trendline, states should do so provided budgetary targets are met, implying that the pandemic did not create a substantial permanent loss in government Capex in terms of trend.
If both the Centre and the states meet their Capex budgetary targets this fiscal, the pre-pandemic decadal trend for overall Capex will be reconsidered. The Central Capex increased by 31% in the previous fiscal year, and if current trends continue, it is expected to exceed the pre-pandemic trend level by 12%, with states meeting 80-85% of their Capex targets.
The budget calls for a 26% increase over the previous fiscal's revised expectations, and if achieved, Central Capex may surpass the pre-pandemic decadal trend by 12%. To put it another way, Central Capex will have to increase 19% year-over-year in the second half to meet that goal.
The Centre spent 41% of its budgeted objective for the full fiscal year in the first half of this year. States, on the other hand, only spent 29% of their budgets (based on data available for 16 major states — Andhra, Bihar, Chhattisgarh, Gujarat, Haryana, Jharkhand, Karnataka, Kerala, MP, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, and UP — which account for 80 per cent of state Capex).
Rural development investment on rural roads, housing, and other infrastructure increased 14 percent over pre-pandemic levels, according to the report (while it is listed in revenue expenditure, 80% of it is committed to the production of capital assets).
When it comes to the states, Capex increased by 78 percent in the first half of the year (April-September). In H1, these states spent 29% of their budget forecasts. Chhattisgarh, Kerala, MP, Punjab, Rajasthan, and Telangana were among the 16 states to meet the Centre's aim of spending 45 percent of budget estimates in the first half, allowing them to borrow an additional 0.5 percent for incremental Capex. Maharashtra, Odisha, and Jharkhand, on the other hand, fall behind, spending less than 20% of their allocated Capex in H1.
According to studies, public capital spending has a greater multiplier effect on economic production than revenue spending. According to a Reserve Bank study from 2019, the Central Capex multiplier is 3.25, meaning that a Re 1 increase in Capex boosts output by Rs 3.25, while by states, it boosts output by Rs 2.