Capital Formation Set for Revival: Finance Ministry Predicts Economic Upturn

The Ministry of Finance anticipates a resurgence in capital formation growth by mid-2024-25, driven by escalating government capital expenditure. Despite a lower-than-expected GDP growth in early quarters and subdued investment, there are optimistic signs from reduced inflationary pressures and strong domestic fundamentals for 2025-26.

In a promising announcement on Thursday, the Ministry of Finance indicated that growth in capital formation is expected to rebound in the latter half of the 2024-25 fiscal year. The monthly report highlights an uptick in government capital expenditure, contrasting with the slower pace observed in the initial two quarters.

The Indian economy, however, grew by a modest 5.4% in the July-September quarter, falling short of the Reserve Bank of India's 7% forecast. The earlier April-June period also saw sluggish growth due to limited capital expenditure and weak consumer demand, leading to an average growth of 6% for the first half of the fiscal year.

The finance ministry's report underscores steady private consumption aided by consistent rural demand, while investment growth saw a slowdown attributed to restrained public and private capital spending due to global uncertainties and overcapacity fears. Nevertheless, signs of a rebound in capital formation are emerging alongside easing inflation, with lower food prices and a stable outlook for 2025-26.

(With inputs from agencies.)