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.
Mundle et al. (Mon,) studied this question.
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