Frontloading infrastructure spending could lead to faster economic growth, says Crisil

India’s FY2023 budget investment surge in the infrastructure sector is expected to usher in faster economic growth, ratings agency Crisil said.

The majority of the massive capital expenditure of the 2022-23 budget – Rs 7.50 lakh crore – will be spent on infrastructure development. Furthermore, the budget avoided a definitive surge in consumption to support the economic recovery.

Instead, he fought for capital spending, with an eye on the medium term.

“On the one hand, the upturn in the consumption cycle is now linked to a general recovery in economic activity, which the government is trying to organize with a focus on investment,” he said.

“Continuing down this path would enhance growth potential and hopefully provide medium-term growth stamina.”

However, he pointed out that in the short term, refraining from directly supporting consumption could slow the pace of economic recovery.

Notably, the National Office of Statistics (NSO) latest estimates of India’s GDP for this fiscal year indicate that household consumption demand lags 2.2% behind fiscal 2020 levels.

“That makes it the worst performer among the demand components of post-pandemic GDP. To boot, private consumption was already slowing before the pandemic. It’s a similar story with household incomes.”

“The current slowdown in consumption also stems from pandemic-induced income inequality. Thus, direct support for consumption and incomes could have accelerated growth, in addition to empowering people to survive.”

Additionally, consumer sentiment is an important clue for companies getting into investing.

“Thus, political support to ensure a sustained consumer stimulus in this budget would also have spurred manufacturers to invest in expanding capacity to meet what they perceive to be growing demand.”

“The stage is otherwise set for an investment stimulus, a strong capex push by government that would attract private investment, flexible lending rates, other government policy measures such as the PLI program and ‘Healthier Business.’

Also, increased allocation for labor-intensive programs such as “PM Awas Yojana”, “PM Gram Sadak Yojana” will support income consumption.

“From this perspective, the next fiscal year should see the rural economy leading the consumer recovery, with the majority of these programs benefiting the hinterland. Similarly, a higher allocation for the ‘National Highways Authority of India’ (NHAI) also promotes job creation”.

(With contributions from IANS)

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Published on: Saturday 05 February 2022, 13:56 IST