Centre may boost capital expenditure to boost growth

According to a person privy to the development, capital expenditure estimates for FY23 may rise between 10-20% over the previous year, with the bulk of the money going into the development of social and physical infrastructure.

View Full Image

Queries sent to the finance ministry remained unanswered till press time.

Finance minister Nirmala Sitharaman increased capex by a record 26% to ₹5.54 trillion in FY22, when compared with revised estimates of ₹4.39 trillion in covid-hit fiscal 2021.

A 20% increase in capex over FY22 will take the figure to over ₹6.6 trillion, almost double the pre-pandemic budgeted capex of ₹3.4 trillion in FY20. The total capex from the budget stood at ₹3.16 trillion in FY19.

Government spending had shifted towards capital expenditure for the past few years as such spending helps push growth and jobs, and has a multiplier effect on the economy.

Along with the rise in capex, social sector spending is also expected to be a priority area. Economists say that schemes such as PM-KISAN, which provides financial assistance to farmers, and MGNREGA, a rural jobs guarantee programme, are expected to get higher allocations.

The focus of MGNREGA will also be to create productive infrastructure that helps overall growth.

Arindam Guha, partner and leader, government, and public services, Deloitte India, said, “I would expect the capex to be more or less at 2021-22 level. The government’s capital expenditure is being driven primarily by the National Infrastructure Pipeline (NIP). Energy, roads, and railways are likely to continue to account for around 50% of the capex.”

But Kotak Securities anticipates capital expenditure growth at 19%, led by a 30% increase in roads and highways, 20% in railways and 15% each in defence and housing. Goldman Sachs predicts capex to increase by as much as 12%, while Morgan Stanley expects the central government to nudge states to push spending through incentives such as loans.

‘Bridge the gaps first’

All stakeholders in the industry want to see capital expenditure rise, as private investments will take time to recover, said India Ratings chief economist Devendra Pant. “We must understand the importance of capex during these uncertain times. It is very scarce and, thus, the government should also focus on plugging holes made by cost overruns in infrastructure projects,” Pant added.

Citing the ministry of statistics and programme implementation figures, Pant said that out of 1,673 projects where investment in each project is ₹1.5 billion or more, 445 had a cost overrun of ₹4.38 trillion by the end-November 2021. This is a “big hole”, and the government needs to focus on the implementation of projects, too.

Wealth Tax to fund Capex?

Soaring inflation has left little space for the Union government to make a case for a tax hike. And with disinvestment falling way behind target, government revenues are already stretched—even with a rise in tax collections, both direct and indirect.

Public finance experts said that capex growth would likely be financed by higher tax revenues in FY23 and from asset sales deferred from the current year.

Mint reported that more than 80% of Indians supported a tax on the rich and corporations that had earned record profits during the pandemic. This comes as the pandemic saw disproportionate growth of wealth in the economy. While most households witnessed a drop in income, the top 1% saw a multifold growth in their overall wealth, fuelling calls for a wealth tax.

However, experts said a wealth tax may not be the right way to finance spending.

Deloitte India’s Guha said steps that dent investor confidence are not the right way to boost capex. The quantum of return would not be enough, Guha added.