India’s capital expenditure recorded a growth of over 70% in May 2022. This can be attributed to the government’s concentrated approach to expanding Capex while maintaining a budgeted fiscal deficit to GDP ratio following the excise duty cuts on fuel, Economic times reported citing the finance ministry economic division monthly economic report.
The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket.
The surging inflation may have been a stumbling block, but the robust GST collection, the increase in customs duties, and the imposition of windfall tax are likely to boost government revenues and assist in keeping the fiscal deficit to GDP ratio unchanged from its budgeted level.
To further facilitate Capex, the government has also announced rules for disbursing Rs. 1 trillion in interest-free Capex loans to states. In addition, the corporate sector has also started to grow gradually, hinting at revival owing to healthy growth in sales due to demand recovery, the report notes.
Indices of core industries' production, industrial production, and freight traffic have also shown sequential and year-on-year improvement in Q1 of 2022-23, stated the economic report.
As per the report, India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports. The deterioration of CAD could, however, be moderated with an increase in service exports, in which India is more globally competitive as compared to merchandise exports, the report said.
