Pvt investment still lagging

The intent of Union Budget FY23 is to nurture growth, primarily through public investment, as private investment is yet to meaningfully pick up. It continued to be more transparent, by reducing off-budget expenditure and relatively conservative in its estimates of receipts.

The two numbers which really stood out were the higher capex and higher market borrowing for FY23. We look at the trade-offs of this approach, in terms of its likely impact on states, funding, fiscal consolidation and, most importantly, growth.

Conservative or realistic estimates?

Implied Q4 FY22 (Jan-Mar) estimate point to a 14.5 per cent y-o-y contraction in gross tax revenue, after it grew 44 per cent during Apr-Dec.

Despite trade-offs, can public investment get the economy's wheels moving?

Capex-led impetus for growth is likely a good option now given balance sheets of corporates and banks are likely better on aggregate, although possibly with skews within. However, capacity utilisation broadly continues to be at levels below thresholds to commence a private capex cycle.Balance sheets of households on aggregate (impacted in the last decade by the investment slowdown percolating onto the demand side but then staying afloat with leverage from NBFCs until 2018 after which private consumption materially slowed and is currently below the pre-pandemic real level) have also likely been hit again by the pandemic and the following K-shaped recovery. With these constraints in play, execution, quality of expenditure and getting states fully on board becomes even more critical to generate inclusive medium-term growth. However, the funding route taken for this in the immediate future tests the appetite of the domestic bond market, although there could potentially be some mild positive surprise here as we traverse FY23.

(Sreejith Balasubramanian is Economist – Fund Management, IDFC AMC. The views expressed are personal)