Indian government’s January capex jumps 60% YoY after a slump in December

• Capex has gained momentum once again in January – after a slump in December – growing 60% year-on-year to ₹79,948 crore.
  
• The total capex for FY23 has touched 78% of the total revised estimate of ₹7.28 lakh crore, as against 73% in the same period last year.
  
• Government’s capex in FY23 has also been higher every month when compared to the same period in FY22.
  
• According to government data, the fiscal deficit at the end of January FY23 stood at ₹11.9 lakh crore, or 67.8% of the full-year budget estimates.
  

The Indian government’s capital expenditure (capex) witnessed a rebound in January after slumping in December, crossing 78% of the total revised estimates for FY23. Capex jumped 60% year-on-year in January to ₹79,948 crore, taking the government’s total capex so far this fiscal year to ₹5.7 lakh crore.

Capex momentum took a pause in December, marking the first month of decline in FY23 so far. According to data released by the Ministry of Finance, capex slumped 63.7% YoY in December to ₹42,831 crore.

According to available data, the government is still nearly 22%, or ₹1.58 lakh crore, shy of hitting its capex target of ₹7.28 lakh crore for FY23.

Despite the December slump, capex trends during FY23 have pointed at more proactive spending by the government – its spends every month this year so far have been higher as a percentage of the budget for the entire year.

“On the current trend, it appears that the full-year's capex (announced in the Budget) will be met,” the government had said in its Economic Survey 2022-23 earlier in January.

On an average, the government has spent 29% more in capex in the first ten months of FY23 at ₹56,989 crore per month when compared to the same period in FY22, at ₹44,169 crore per month.

For FY24, the government has set a 33% higher target for capex at ₹10 lakh crore. Higher capex allocation and a resilient economy has pushed global credit rating agency Moody’s to upgrade its outlook for India’s GDP growth in 2023 by 70 basis points to 5.5%.

Rebound in capex widens fiscal deficit

However, a rebound in capex has also resulted in a further widening of the fiscal deficit as a percentage of the budget estimate. Fiscal deficit is the difference between the total revenue and total expenditure of the government during a financial year.

According to government data, the fiscal deficit at the end of January FY23 stood at ₹11.9 lakh crore, or 67.8% of the full-year budget estimates. At the same point last year, the fiscal deficit stood at only 58.9% of FY22’s budget estimate.

Apart from capex, another reason for the higher fiscal deficit this year so far is an increase of ₹48,900 crore in subsidies, according to a report by ICICI Bank Research.

On the revenue side, a moderate 9% growth in net tax revenues coupled with a decline of 21% in non-tax revenues also added to the widening gap between the government’s revenue and expenditure.

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