CII calls for higher public capex, investment push to sustain growth

The Confederation of Indian Industry (CII)'s recent call for a significant boost in public capital expenditure (capex) by both central and state governments for FY27 underscores a critical aspect of India's economic strategy: the pivotal role of government investment in driving sustained growth. This recommendation is not merely an isolated suggestion but reflects a broader understanding of economic dynamics, especially in a developing economy like India.

**Background Context: The Engine of Growth**

Capital expenditure refers to money spent by the government on creating long-term assets like roads, railways, ports, airports, power plants, and social infrastructure such as schools and hospitals. Unlike revenue expenditure, which covers day-to-day operational costs (salaries, subsidies), capex has a multi-faceted impact on the economy. It directly boosts demand for goods and services (cement, steel, machinery, labor), creates employment, and, most importantly, enhances the productive capacity of the economy. Better infrastructure reduces logistics costs, improves connectivity, and makes businesses more competitive, thereby attracting private investment – a phenomenon often termed the 'crowding-in' effect. Post-pandemic, many economies, including India, have recognized the necessity of public capex to kickstart and sustain growth, especially when private investment remains hesitant. The Indian government, particularly since the Union Budget 2021-22, has made a concerted effort to increase its capital outlay, recognizing its high multiplier effect on GDP.

**What Happened: CII's Strategic Recommendation**

CII, a leading industry association, has urged the government to increase central capital expenditure by 12% and state capital expenditure by 10% for the fiscal year 2026-27 (FY27). This specific numerical recommendation highlights a clear strategic vision: to prioritize investment over consumption-led growth, which is often seen as unsustainable in the long run without robust productive capacities. The rationale behind this push is to ensure that India's economic momentum, which has been robust in recent years despite global headwinds, continues on a high-growth trajectory. The aim is not just to maintain growth but to achieve sustained, high-quality growth that translates into job creation and improved living standards.

**Key Stakeholders and Their Roles**

1. **Confederation of Indian Industry (CII):** As a prominent industry body, CII represents a vast cross-section of Indian businesses. Its recommendations are a reflection of the private sector's perspectives on economic policy. By advocating for higher public capex, CII signals that the industry believes improved infrastructure and a conducive investment climate are essential for its own expansion and profitability. These recommendations often influence government policy discussions.

2. **Government of India (Central and State):** The central and state governments are the primary decision-makers and implementers. The Union Ministry of Finance, NITI Aayog, and various infrastructure ministries (e.g., Ministry of Road Transport and Highways, Ministry of Railways) are directly involved in budgeting, planning, and executing these projects. State governments, through their respective finance departments and public works departments, play an equally crucial role in grassroots infrastructure development. The implementation of such a capex push requires careful budgetary allocation, project management, and inter-ministerial coordination.

3. **Private Sector:** While the government initiates public capex, the private sector is a significant beneficiary and partner. Construction companies, material suppliers (steel, cement), machinery manufacturers, and logistics firms all gain from increased project activity. Crucially, as infrastructure improves, private companies are incentivized to invest more in manufacturing, services, and other productive sectors, leading to a virtuous cycle of investment and growth.

4. **General Public:** Ultimately, the benefits of enhanced capital expenditure accrue to the citizens. Improved roads mean faster commute times and lower transport costs; better ports and logistics enhance trade; modern hospitals and schools provide essential services. This directly contributes to ease of living, job creation, and overall socio-economic development.

**Significance for India: A Pathway to 'Viksit Bharat'**

This focus on capex is crucial for India's ambition to become a 'Viksit Bharat' (developed India) by 2047. Robust infrastructure is a prerequisite for sustained double-digit growth, which is necessary to achieve developed nation status. Higher capex leads to:

* **Economic Growth & Employment:** Direct demand generation, multiplier effect on GDP, and creation of both skilled and unskilled jobs.

* **Enhanced Competitiveness:** Better infrastructure reduces logistical bottlenecks, making Indian goods and services more competitive domestically and internationally, aligning with initiatives like 'Make in India'.

* **Attracting Private Investment:** Public investment in infrastructure acts as a signal and enabler for private sector investment, addressing concerns about insufficient private capital formation.

* **Regional Development:** Targeted capex can bridge regional disparities by developing infrastructure in underserved areas.

**Historical Context and Policy Evolution**

India's economic history shows varying emphasis on public investment. In the initial decades post-independence, state-led investment was dominant. Post-1991 liberalization, there was a greater role for the private sector, but public investment in core infrastructure remained critical. The early 2000s saw a significant push in highway construction (e.g., Golden Quadrilateral). More recently, initiatives like the **National Infrastructure Pipeline (NIP)**, launched in 2019, projected an investment of ₹111 lakh crore over 2020-2025, demonstrating a long-term commitment. This was further bolstered by the **PM Gati Shakti National Master Plan** launched in 2021, which aims for integrated planning and coordinated implementation of infrastructure connectivity projects, reducing logistical costs and improving efficiency. These policies underscore a consistent government focus on leveraging public capex for growth.

**Future Implications and Constitutional Framework**

If the government heeds CII's advice, India could see accelerated infrastructure development and sustained economic growth. However, challenges remain: ensuring the quality and timely execution of projects, managing fiscal deficits (though capex is considered 'good' expenditure, it still impacts the deficit), and fostering greater Centre-State coordination. The financial relations between the Centre and States are governed by **Articles 268-281** of the Constitution, particularly **Article 280** which mandates the establishment of a Finance Commission to recommend the distribution of taxes and grants-in-aid between the Union and the States. This is crucial for states to have the fiscal space to increase their capex. The **Fiscal Responsibility and Budget Management (FRBM) Act, 2003**, provides a framework for fiscal discipline, though it often includes provisions for higher capex even amidst fiscal consolidation goals. The annual **Union Budget (Article 112)** and **State Budgets (Article 202)** are the primary instruments through which these capital expenditure allocations are made. The future trajectory of India's economy will heavily depend on how effectively these recommendations are integrated into policy and executed on the ground, balancing growth aspirations with fiscal prudence to achieve the vision of a developed nation.