Budget Battle 2025 - Consumption vs Capital Investment : Omniscience Capital
Over the past decade, India's budget has demonstrated a strategic focus on capital expenditure (Capex) to drive infrastructure development and economic growth. The analysis of budgetary allocations reveals a significant increase in Capex, with a compound annual growth rate (CAGR) of 14.9% over the past ten years. This growth underscores the government's commitment to long term development, as evidenced by the rise in Capex as a percentage of the total budget from 19% in 2019-20 to 31% in 2025-26. While the tax rebate stole the limelight in the budget discussions, we believe with nearly INR 16 lakh crores (USD $180 billion) of capital investments remain the most important key allocation in the budget.
As FY25 marks the completion of the 5 year period from the year 2020, when the National Infrastructure Pipeline (NIP) initiative was launched, we reviewed the progress on the government’s initial target of investing approximately Rs 102.5 lakh crore on key infrastructure sectors such as energy, roads, railways, and urban development. The NIP has seen exceptional success, with sectors like roads and railways exceeding their Capex targets. The robust multiplier effect of Capex on GDP, estimated at 2.45, highlights the importance of sustained investment in capital projects to achieve significant economic growth. Achieving a projected GDP boost of Rs 200-250 trillion through increased Capex will significantly accelerate India's journey towards its ambitious goal of becoming a $5 trillion economy and beyond, possibly $7+ trillion. This substantial investment in infrastructure and development will not only enhance economic growth but also create numerous job opportunities and improve the overall quality of life. By prioritizing Capex, India can ensure sustainable and inclusive growth, positioning itself as a global economic powerhouse sooner than anticipated. If this continues, the dream of a Viksit Bharat during the Amrit Kaal looks very much in reach.
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