The Economic Survey pointed out that the Capital Expenditure (Capex)-led growth strategy will enable India to keep the growth-interest rate differential positive, leading to a sustainable government debt to GDP in the medium run.
The resilience in the fiscal performance of the Union Government has been facilitated by the recovery in economic activity, buoyancy in revenues from direct taxes and GST, and realistic assumptions in the Budget. The Gross Tax Revenue registered a YoY growth of 15.5 per cent from April to November 2022, driven by robust growth in the direct taxes and Goods and Services Tax (GST).
The growth in direct taxes during the first eight months of the year was much higher than their corresponding longer-term averages. The GST has stabilised as a vital revenue source for central and state governments, with the gross GST collections increasing at 24.8 per cent on YoY basis during April – December 2022.
On the expenditure side, the Union Government’s emphasis on capital expenditure (Capex) has continued despite higher revenue expenditure requirements during the year. The Centre’s Capex has steadily increased from a long-term average of 1.7 per cent of GDP (FY09 to FY20) to 2.5 per cent of GDP in FY22.
Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capex of the central government and its public sector enterprises is rapidly being deployed, the survey said. Going by the capex multiplier estimated for the country, the economic output of the country is set to increase by at least four times the amount of capex, it said.
A sustained increase in private capex is also “imminent” with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing it has been able to generate. The uptick in private consumption has also boosted production activity, resulting in an increase in capacity utilisation across sectors, said the survey.
Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0%, and that too without the advantage of a base effect, it is a reflection of India’s underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy, the survey said.
“The Centre has also incentivised the State Governments through interest-free loans and enhanced borrowing ceilings to prioritise their spending on Capex. With an emphasis on infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs, the increase in Capex has large-scale positive implications for medium-term growth” The Survey said.
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