Infrastructure development key to government’s strategy to sustain investment revival: RBI report

The government’s infrastructure focus and positive business sentiment are nurturing a sustained investment cycle revival, RBI report indicates.

The government’s focus on infrastructure development, coupled with buoyant business optimism, could nurture a sustained revival in the investment cycle, according to a Reserve Bank report. According to the RBI’s Monetary Policy Report- April 2024, domestic economic activity, backed by strong fundamentals, remained robust in the first half of 2023-24, weathering challenges from muted global demand.

The report further said that while the fixed investment and the lower drag from net external demand propelled real GDP growth, private consumption received support from steady urban demand. On the supply side, it added, manufacturing activity strengthened further, benefiting from lower input costs and the improvement in global supply chains.

Construction activity remained firm on the back of buoyant housing demand and the government’s thrust on infrastructure. “Going ahead, private consumption will get support from improved prospects for rural demand and rising consumer confidence.

“The government’s continued emphasis on infrastructure creation, coupled with an uptick in private corporate investment and buoyant business optimism, could nurture a sustained revival in the investment cycle, which augurs well for boosting productivity and growth in the economy,” the RBI report said. It further said that the impact of a lower fiscal impulse on growth could be offset by higher growth-inducing capital expenditure.

The economy’s medium and long-term growth potential “is rising, propelled by structural drivers like improving physical infrastructure; development of world class digital and payments technology; ease of doing business; enhanced labour force participation; and improved quality of fiscal spending,” the report said. The government has announced an 11 per cent growth in capital expenditure (capex) to Rs 11.11 lakh crore for the current financial year as private investment picks up.

The government hiked capex by 37.5 per cent to Rs 10 lakh crore in 2023-24. As per an RBI survey, consumer confidence one year ahead reached a new high.

The survey reflected that the prospects of investment activity remain bright owing to an upturn in the private capex cycle becoming steadily broad-based; persisting and robust government capital expenditure; healthy balance sheets of banks and corporates; rising capacity utilisation; and strengthening business optimism.