India Needs to Speed Up Spending to Meet Growth Targets, Say Experts
New Delhi, India – The central government must increase its capital expenditure by 41% in the remaining months of this fiscal year to meet growth targets. Experts noted a 19.5% contraction in government capital expenditure in the first five months (April-August) of this fiscal year.
Expert Opinions
DK Srivastava, Chief Policy Advisor at EY India, commented on the CGA data released on Monday, stating, “With an annual target of capital expenditure growth of 17.1% in 2024-25 over last year’s CGA actuals, the growth required for the remaining months to meet the budgeted target is 41.0%.” He emphasized that India’s growth will be driven by domestic demand, which depends on government infrastructure investments.
Srivastava added, “To ensure the Indian economy continues its impressive track record of maintaining an annual growth rate of 7% or more—a feat achieved over the past three years since 2021-22—the Government of India needs to proactively accelerate its capital expenditures.”
Economic Data
The Reserve Bank of India released fiscal data for April-June 2024-25, showing that India’s Current Account Deficit (CAD) widened to USD 9.7 billion, or 1.1% of GDP, in the first quarter of FY25. This is up from USD 8.9 billion (1.0% of GDP) in Q1 2023-24 and compared to a surplus of USD 4.6 billion (0.5% of GDP) in Q4 2023-24. The widening CAD was mainly due to the increasing merchandise trade deficit, which rose to USD 65.1 billion in Q1 2024-25 from USD 56.7 billion in Q1 2023-24.
Fiscal Deficit
Manoranjan Sharma, Chief Economist at Infomerics Ratings, noted that India’s fiscal deficit for April to August 2024 stood at Rs. 4.35 lakh crore. This deficit accounted for 27% of the budgetary estimates, an improvement from the previous year’s 36% during the same period. Sharma emphasized that this data is significant in light of the government’s goal of gradually narrowing the fiscal deficit to 4.9% of GDP in FY25, down from 5.6% in FY24.
Sharma stated, “In conformity with our expectations, India’s fiscal deficit for April to August 2024 came in at Rs. 4.35 lakh crore rupees. This deficit constituted 27% of the Budgetary estimates and marked a welcome reduction from the previous year’s 36%. Total receipt was Rs. 12.17 lakh crore rupees; overall expenditure was Rs. 16.52 lakh crore rupees. They were 38% and 34.3%, respectively of FY 25 target.”
Doubts Revealed
capital expenditure -: Capital expenditure is money spent by the government to build things like roads, schools, and hospitals. It helps the country grow and improve.
fiscal year -: A fiscal year is a 12-month period used for budgeting and financial purposes. In India, it starts on April 1 and ends on March 31 of the next year.
contraction -: Contraction means something is getting smaller. In this context, it means the economy or spending has decreased.
domestic demand -: Domestic demand is the total amount of goods and services that people in a country want to buy. It helps the economy grow when people buy more things.
Current Account Deficit -: Current Account Deficit means the country is spending more money on foreign trade than it is earning. It’s like spending more money than you have in your piggy bank.
fiscal deficit -: Fiscal deficit is when the government spends more money than it earns. It’s like when you spend more pocket money than you get from your parents.
Rs. 4.35 lakh crore -: Rs. 4.35 lakh crore is a very large amount of money. One lakh is 100,000, so 4.35 lakh crore is 4.35 trillion rupees.
DK Srivastava -: DK Srivastava is an expert from EY India, a company that provides financial and business advice.
Manoranjan Sharma -: Manoranjan Sharma is an expert from Infomerics Ratings, a company that rates how safe it is to invest in different things.
Reserve Bank of India -: The Reserve Bank of India (RBI) is the central bank of India. It manages the country’s money and financial system.
