‘Fiscal consolidation targets keep pressure on public capex’

Mumbai: Fiscal consolidation commitments will make the growth in public capital expenditure witnessed in the past few years unsustainable going forward, an American brokerage said on Monday.

The private sector will have to play a more prominent role to offset the same. Corporate sector balance sheets are deleveraged and banks are also well-capitalised to aid such an eventuality, Goldman Sachs said in a note. “Given the medium term fiscal consolidation path -- the central government intends to reduce its fiscal deficit by almost 1.5 per cent of GDP over the next two years -- public capex growth rates seen in the past few years cannot be sustained,” analysts at the brokerage said. According to the note, between 1997-2022, corporates and households were responsible for around three-fourth of the investments but the last decade has seen a decline in investments by both the groups. Interestingly, private corporate and household investments together accounted for about 25 per cent of GDP as of 2022, it added. In the last few years, the increase in public capital expenditure has helped the country by way of an uptick in the real investment trend growth, the brokerage said. In the last three years alone, the central government has increased its capital expenditure by 33 per cent from a compounded annual growth perspective to 3.3 per cent of GDP in FY24, it said.