Private capex showing signs of revival: DEA secretary

As for capex, the Budget for FY22 raised the target for such productive spending by 30% from a year before, as the government pushed for public capex to reverse a Covid-induced slump in economic growth.

The long-elusive capital expenditure in the private sector is showing early signs of revival, economic affairs secretary Ajay Seth said on Wednesday. At the same time, the government will continue to raise its capex in the coming years, Seth indicated.

A spurt in capital goods output in recent months signals that private capex is turning the corner, he said. The capital goods production surged in the range of 20% to 75% between May and August from a year earlier, albeit supported by a conducive base.

Addressing the CII’s Global Economic Policy Summit, 2021, Seth said the government is well aware of the global semiconductor shortage and is working to resolve the issue in the country. He also said the government will soon take up with the central bank the desirability of a credit policy to give a leg-up to the real estate and affordable housing sector.

As for capex, the Budget for FY22 raised the target for such productive spending by 30% from a year before, as the government pushed for public capex to reverse a Covid-induced slump in economic growth.

Thanks to an improvement in revenue position, many states, too, have raised their capex. At Rs 1.6 lakh crore in April-September of FY22, the capex of 20 states was 23% higher than in the corresponding period of the pre-pandemic year, FY20. Such productive spending by public-sector enterprises has improved of late, although it’s still trailing the desired level.

The finance ministry has already asked various infrastructure ministries and departments to step up capex and create durable assets. Seth also stressed the crucial role of the private sector in rebuilding the Covid-hit economy. “Economic growth has to come from a virtuous cycle of private investment with private sector having a larger and larger economic role, while the government’s role would be that of a facilitator,” he said.

There is a need to double capital expenditure, which is currently about 5-6% of GDP, on a medium-term basis, he stressed.

In the past 5-7 years, there has been a crucial change in the process of economic planning for future, where more reforms, easing compliances and removing other friction points have been the overarching approach of the government, Seth added.

While the banking sector, supported by reforms such as the insolvency and bankruptcy code, is now on a much stronger footing, long-term financing through the corporate bond market is yet to mature, he said.