The elusive private capex boom

Economists for decades have constantly lamented that we are having too much revenue expenditure and not enough capital expenditure (capex). That complaint, at least, can be retired.

- DEBASHIS BASU

In the past 11 years the Modi government has spent close to ¢54 trillion as capex, about &38 trillion after the pandemic.

For three consecutive years, public investment has exceeded 11 trillion annually, poured into roads, railways, defence, water, and other forms of infrastructure. In FY25, the capital outlay accounted for 23 per cent of government spending — the highest in two decades.

Surely this would have got us a big dividend, economic and non-economic: Faster connectivity; lower or stable infrastructure costs, leading to higher productivity and output; and competitiveness. Non-economic benefits would be cheaper and faster travel, better civic infrastructure, and water and power connections. Government spending would trickle down quickly and benefit the masses with more jobs and higher wages. Above all, the state’s heavy spending was expected to awaken a long dormant animal spirit: Private capital expenditure.

No dearth of efforts

That spirit, however, remains stubbornly asleep. Successive policy rounds have tried to rouse it — each with the same disappointing result. The government’s first diagnosis was that private investment had been held back by India’s festering problem of bad loans. Public-sector banks, burdened with dud assets from the previous Congress-led years, were too crippled to lend. The response was sweeping: Bad loans were written off, a bankruptcy code was enacted, and the system was purged of its rot — though few culprits were punished. But nobody asked business persons whether it was lack of money or poor demand that was holding them back from investing. Private capex remained weak.