Analysis shows that lower capital expenditure hampers GDP growth in 2024-26, suggesting fiscal changes may enhance employment growth.
A large reduction in government capital expenditure growth in 2024–25 and 2025–26 to meet fiscal deficit targets primarily accounts for the recent decline in growth, since capex growth is a key driver of GDP growth. The greater flexibility of the new debt-to-GDP related fiscal consolidation framework should be exploited to restore high government capex and GDP growth. Fiscal incentives to accelerate growth of large, employment-intensive sectors like construction is also necessary for more employment-intensive growth.
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Mundle et al. (2025) studied this question.
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