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Sunday, July 21, 2024

Enhanced govt capex crowding in private investment, says Finmin report

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New Delhi: Higher capital expenditure (capex) by the government is now leading to the crowding in of private investment, and the same is visible in high-frequency economic indicators, a Finance Ministry report has noted.

The Monthly Economic Review for the month of July released on Tuesday said that states’ capital expenditure increased by 74.3% year-on-year (YoY) in Q1 of FY24 to complement the Centre’s capex increase of 59.1% in the same quarter.

The report said that a healthy balance sheet of the private sector, with increased capex by the government, is anticipated to increase the opportunities for the private sector to participate in myriad infrastructure initiatives such as highways, construction of new roads, housing, and drinking water projects, among others.

The monthly report said that capacity utilisation in the manufacturing sector is now above its long-run average, signalling the need for additional capacity creation as demand sustains the domestic economy.

In its outlook, the Economic Review said that while domestic consumption and investment demand are expected to continue driving growth, global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by the government and the RBI.

It pointed out that, though growth prospects have been strong, inflationary pressures have re-emerged, driven primarily by global disruptions along with domestic factors.

“Headline CPI-C inflation spiked to 7.4 percent in July 2023, with specific food commodities mainly driving the increase, while core inflation stayed at a 39-month low. Russia’s decision to terminate the Black Sea Grain Deal, along with dry conditions in major wheat-growing areas, caused a price spike in cereals. While domestic factors like white fly disease and uneven monsoon distribution exerted pressure on vegetable prices in India,” the report said,

It was, however, noted that the price pressure on food items is expected to be transitory, as is evident in the steady performance of the agriculture sector and the fresh arrivals in the market.

“Persistent geopolitical concerns continue to shadow world trade growth, which is expected to decline to 2 percent in 2023 from 5.2 percent in 2022. Yet, India’s external sector has displayed resilience with strong service export growth and robust investment inflows, highlighting investors’ confidence in India’s growth story,” it said.

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