With capital expenditure having dropped in three of the five months through July from a year before, the Centre is set to augment the pace of productive spending, a key growth enabler, across important departments.
The finance ministry has already asked various infrastructure ministries and departments to step up capex and create durable assets.
“In some meetings, senior finance ministry officials have even offered to help other departments resolve any critical issue that can potentially obstruct key projects,” a senior official told FE. “There were some challenges due to the second Covid wave but there will be substantial improvement (in capex) in the coming months. The minister is keeping a close watch,” he added.
Since the presentation of the FY22 Budget — in which the Union government pushed for public capex to reverse a Covid-induced growth slump — such expenditure via budget dropped in March, May and July from a year earlier. While the budget capex still rose 15% in the first four months of this fiscal, supported by a conducive base and decent spending in April and June, the growth is only half the annual target of 30%.
For the budgeted goal of Rs 5.54 lakh crore to be realised, the Centre now needs to raise capex by 36% in the remaining months of this fiscal, that, too, on a relatively unfavourable base (especially between October 2021 and February 2022). Until July, capex made up for 23% of the full-year target, against 27% a year earlier when a pan-India lockdown was in force for much of the first four months.
Barring road transport & highways, capex of other key infrastructure departments was less than 33% of the full-year target in the first four months. The capex of the telecom and power departments hit only 2% of their FY22 budgetary outlay until July. Railways, the biggest constituent, spent 26% and housing and urban affairs 25%. This is despite the finance ministry asking crucial departments to front-load their capex.
However, the silver lining is that the Centre’s fiscal deficit in the first four months of this fiscal stood at only 21.3% of the full-year budget estimate, the lowest in about a decade, given the curbs on “wasteful expenditure” across dozens of departments and a rise in revenue mop-up. This leaves the fiscal headroom for the Centre to push up capex in FY22 without endangering its deficit target.
The official quoted above, however, pointed out that capex growth has usually remained inherently volatile across months even in the past. “So, the annual reading of the data would give a more realistic picture. There should be no reason to worry on the Capex front this fiscal,” he asserted.
Chief economic adviser KV Subramanian had earlier said capex had a high multiplier of 4.5, against less than 1 in even well-directed revenue spending.
While base effect pushed up capex by 19 states in the June quarter from a year before to about Rs 60,000 crore, it exceeded the pre-pandemic level (same quarter in FY20) by only 2.6%, according to an Icra report. However, these states’ revenue spending, at Rs 4.9 lakh crore, rose at a much faster pace of 14% in the first quarter from the pre-covid level, Icra chief economist Aditi Nayar said.
While this was necessitated by increased healthcare and other spending in the wake of the pandemic, elevated revenue expenditure may ultimately impair the states’ ability to drive up capex substantially. This may prompt the Centre to prod CPSEs regularly to drive up their capex and realise the target. Until July, capex of dozens of major CPSEs stood at 23% of the full-year target.
The GDP data for the first quarter showed that fixed investment rose by a sharp 55.3% in Q1FY22, which raised its share in the economy by over 7 percentage points to 31.6%. But the absolute size of fixed investment was still below the FY20 level.
Finance minister Nirmala Sitharaman had last month made it clear that the government won’t trim capital expenditure from the budgeted level even towards the end of the fiscal, as was often witnessed earlier.