Can Capex Tinkering Prop Up Private Investment?

Can Capex Tinkering Prop Up Private Investment?

Some have been arguing that capex (Govt Capital Expenditure) should come in for overhaul notwithstanding reports suggesting that at present it is 3.4 per cent of GDP roughly translating to Rs 11.11 trillion. Slashing corporate tax that came way back in 2019 to increasing Govt capex from 0.6 per cent of GDP in 2019 to 3.4 per cent of GDP in 2024-25 couldn't make one envisage a broad private investment corridor and any sentiment of forward movement has been sluggish to say the least. Private investment way back in the '80s was at 10 per cent of GDP and hit a threshold of 27 percent in 2007-08 and from 2011-12 it has been on a downward trajectory. Some would argue the factors prompting the same couldn't necessarily be consumer demand, capacity utilisation, corporate earnings, easy or no easy access to credit. Low private consumption expenditure is what trails the low private investment and to anticipate uptick the former has to grow by leaps and bounds.  Despite Govt upping the ante on capex the corresponding increase in private investment has been slow and stayed still. Private investment has been 19.6 per cent of GDP in 2020-21 and roughly stayed there in the years that followed. 

Drivers Of Economic Growth

Drivers of economic growth are govt spending, private consumption, exports and private investment. Govt has taken the challenge head on and capex spending meant to boost consumer demand has brought to the table mixed results primarily illustrating that urban distress to rural distress could lie at the doors of private investment being reticent. Contrary to popular perception there has been a reverse relationship between consumption and investment whereby from 2012 onwards as consumption rose the private investment theatre witnessed a steep decline and this was due to money meant for savings and investment from govt or private segment led to dipping consumption expenditure. Here the solution could well be saving instruments should be benign thereby bringing an increase in consumer spending and more moolah the populace has in their hands more would be consumption expenditure. 

Capex Spending Doesn't Engineer Investment Defections From Private Sector

Capex spending doesn't engineer investment defections from private sector and this has been observed over period of time. Yet the private investment mandarins would like capex spending to be more with no assurance that they too would chip in. Capex spending would turn world upside down if one were to look at fiscal deficit. Fiscal Responsibility And Budget Management Act has set 3 per cent target on fiscal deficit. To trace that outlook it is easier said than done. When govt capex was at 3 trillion the fiscal deficit was at 3.4 per cent of GDP. Govt would like fiscal deficit to remain roundabout 4.5 per cent by 2025-26 and here any somersault on capex can make fiscal deficit take irreparable hit. 

No Room For Capex Spending To Be Revised; India Inc Has To Take A Call On Investment

Majority would argue that there is no room for capex spending to be revised and private behemoths have to take a call on investment. Inducements like lowering corporate tax couldn't make this segment pour in more and where is the guarantee that a more broad capex would make them hit investment trail. One should look at direct tax buoyancy in the current fiscal where where corporate tax at Rs 1.81 trillion has trailed behind Rs 2.81 trillion coming from personal income tax and this makes transparent that it is for India Inc to take the lead on private investment. 

YEDU KONDALWADA VENKATRAMNA GOVINDA GOVINDA