India's capex records a growth of 70% in May; corporate sector shows signs of revival: Finance Ministry report

India’s capital expenditure recorded a growth of over 70% in May 2022, revealed in the Finance Ministry’s economic report for the month of June released on Thursday.
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.

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 robust GST collection, increase in customs duties, and 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, moderate with an increase in service exports in which India is more globally competitive as compared to merchandise exports, the report said.

One of the key sectors, private investment, is most likely to get back on track on the back of a recovery in capacity utilisation, bigger appetite for undertaking fresh investments, and crowding-in driven by a huge increase in public investment.

“Indian manufacturing companies as per RBI's Industrial Outlook Survey of the Manufacturing Sector, expect sequential improvements in demand conditions, capacity utilization and overall business situation in Q2 and Q3:2022-23. Further, the PLI scheme is also expected to give a significant push to private investment.”

Risks such as increased inflationary pressures, oil prices, and commodity prices continue to act as headwinds, affecting consumption. However, softening of global prices has resulted in downsizing these risks, the report says.