Capital expenditure (capex) has been one of the primary focus areas of the government in the past one decade. As per the Economic Survey 2024, “The focus of capex has been broad-based. Spending in sectors such as road transport and highways, railways, defense services, and telecommunications delivers higher and longer impetuses to growth by addressing logistical bottlenecks and expanding productive capacities. Government capex has also begun to crowd in private investment, as discussed earlier in this chapter. Additionally, the Government continues to disburse grants-in-aid for the creation of capital assets to the states, thereby incentivizing them to increase their productive spending.”
Accordingly, “capex” has emerged as an important driver of
growth, as indicated in its rising share of nominal GDP. As per the provisional
actual (PA) figures for the FY24, capex for FY24 stood at ₹9.5 lakh crore, an increase of 28.2 per cent on a YoY basis, and was
2.8 times the level of FY20.
However, despite the sharp rise in the government capex in building the enabling infrastructure and incentivizing enterprises, the private capex has not responded adequately. Lamenting the private entrepreneurs, the Economic Survey stated, “while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is incumbent upon the private sector to take forward the momentum in capital formation on its own and in partnership with the Government. Between FY19 and FY23, the share of private non-financial corporations in overall GFCF increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent. This was mostly driven by their fast-increasing share in the additional stock of dwellings, other buildings and structures. Their share in addition to the capital stock in terms of machinery and equipment, started growing robustly only since FY22, a trend that needs to be sustained on the strength of their improving bottom-line and balance sheets in order to generate high-quality jobs.”
In the recently concluded general elections, lack of adequate job generation emerged as one of the key agenda points. The experts have held the prevalence of high unemployment rates amongst educated youth as one of the factors responsible for below par performance of the BJP.
Obviously, the government is concerned about the employment situation. The problem is that commitment to fiscal discipline and structural reform in the public sector may not permit the government to create many new employment opportunities in the public sector. The employment generation would thus be the responsibility of the private sector.
In the recent budget for FY25, the government announced some measures to encourage private enterprises to invest in building new manufacturing capacities and generate employment for the youth entering the job market. The budget adopts a carrot and stick approach for that. On one hand, it provides support for hiring more fresher employees and skill them, and on the other hand it makes outflow of funds from companies difficult. After dividends, now buybacks are also made tax inefficient. The idea seems to “encourage” companies to invest in growing their businesses and reward shareholders through share price appreciation only. Abolition of Angel Tax on startups is also a measure to encourage more new businesses to be set up and offer employment opportunities.
How much of these efforts will yield in terms of new employment and growth is to be seen, but the intent seems clear.