“I think this level of public capital investment will probably need to be sustained for a long period; not saying it should go up, but it should be sustained,” Somanathan said in an interaction on Friday. “I’m not saying the exact figure of 3.4% (capex as a percentage of nominal GDP) but, broadly, around 3%.”

In its interim budget for FY25, the Union government raised the allocation for developing infrastructure projects to ₹11.11 trillion, which is about 3.4% of the projected nominal GDP for the next fiscal year. The FY25 capex plan marks an 11.1% jump from the ongoing fiscal’s capex of ₹10 trillion (budget estimate). Revised estimates put that figure at ₹9.5 trillion, of which 95% has been utilised thus far.

“The ability to utilize such a huge increase in capex has only been 95%. I think this is a good thing, not a bad thing. It can be better, but considering where it came from, 95% is good,” Somanathan said.

Meanwhile, the government will stick to its fiscal deficit target of 5.1% for FY25, unless there’s a major policy change or a geopolitical event that impacts the global economy. “The intention is very clear—it is to stick to the target (fiscal deficit),” the finance secretary said.

Somanathan added that the government aims to maintain nominal GDP growth of 10.5% annually.

Meanwhile, India’s subsidy bill, comprising social transfers for food, fertilizer and cooking gas, has been projected at ₹3.81 trillion for FY25 in the interim budget, compared to a revised estimate of ₹4.03 trillion for FY24. Of the FY25 projection, the Centre has allocated ₹1.64 trillion as fertilizer subsidy.

The decrease in fertiliser subsidies was due to a decline in fertiliser and ammonia prices in recent months.

Somanathan said that the ongoing Red Sea conflict, which has hit trade, is not expected to impact fertiliser prices. “This is a median estimate that can go down a little, it can go up a little; if it goes up, we will be able to fund it within this overall (budgeted) fiscal numbers,” he added.

Meanwhile, the government is unlikely to meet its debt-to-GDP ratio target of 40% for FY25. The central government’s debt stood at ₹155.6 trillion, or 57.1% of GDP, at the end of March 2023.

In its January 2017 report, the fiscal responsibility and budget management (FRBM) review committee recommended the central government reduce its debt-to-GDP ratio to 40% by 2022-23. The government amended the FRBM law to say that this target should be achieved by the end of 2024-25.

Somanathan said the paradigm around debt-to-GDP ratio needs to change with changing times. “I would say the whole paradigm needs to shift. I think this paradigm of having a fixed percentage for all circumstances has broken down globally,” he said.