India's economic growth hinges on private sector's Capex push: Jefferies

According to the global financial services Jefferies, the Indian government's capital expenditure growth is slowing down, with a 10 per cent growth expected in FY25, following an estimated 7 per cent increase in FY24. This is a significant slowdown compared to the average 30 per cent annual growth seen between FY20 and FY24.

Jefferies emphasised that the private sector must now drive the next phase of India's investment cycle.

However, Jefferies' head of India research, Mahesh Nandurkar, notes that the foundation for broad-based investment recovery has already been laid during Prime Minister Narendra Modi's second term.

The government has played a leading role in infrastructure expansion, and now it's up to the private sector to take the baton and drive capital spending.

The recent budget has also provided tax relief for middle-class taxpayers, which is expected to boost disposable income and support domestic consumption. The income tax exemption threshold has been raised from Rs7 lakh per annum to Rs12 lakh per annum, while tax rates for those earning above Rs12 lakh have also been reduced.

The crucial macroeconomic question now is whether private sector firms will take over the baton, leading the next phase of India's capital expenditure cycle.

According to Jefferies' India office, these tax cuts will benefit approximately 35 million taxpayers, providing an average financial relief of Rs30,000 per individual. This measure is expected to boost disposable income and support domestic consumption.

Additionally, the government has outlined an ambitious fiscal consolidation roadmap, aiming to reduce India's debt-to-GDP ratio from 57 per cent currently to 51 per cent by FY31. This aligns with the fiscal deficit target of 4.4 per cent in FY26, with a further decline to around 3.5-3.6 per cent of GDP by FY31.

While concerns remain over the moderation in public investment, Jefferies underscored that India's economic trajectory now depends on the private sector's willingness to step up and drive capital spending, ensuring sustained economic growth. (ANI)