Union Budget 2022 | Finance Minister Nirmala Sitharaman raises wager on capex push for growth, jobs

Finance Minister Nirmala Sitharaman, in the Union Budget for 2022-23, has raised the bet on public capital expenditure to pump prime the investment cycle and spur India’s economic recovery from the pandemic through 2022-23.

The ‘Effective Capital Expenditure’ of the Central Government is estimated at ₹10.68 lakh crore in  2022-23 or about 4.1% of GDP, factoring in Grants-in-Aid to States for creating capital assets, Ms. Sitharaman said. This is little over 27% more than the revised estimate of ₹8.4 lakh crore for the current year, which in turn is nearly 28% higher than 2020-21 allocations for such capital spending.   

India’s economic recovery is continuing to benefit from the multiplier effects from the sharp increase in public investment last year’s Budget, the Minister said, adding that capex holds the key for a speedy and sustained revival and job creation. 

Also read: Union Budget 2022 highlights

The capital spending push will also induce demand for services and manufactured inputs from large industries and micro, small and medium enterprises (MSMEs), while helping farmers through better infrastructure.  

“The economy has shown strong resilience to come out of the effects of the pandemic with high growth. However, we need to sustain that level to make up for the setback of 2020-21,” she said.  

While the Economic Survey tabled on January 31 noted that a nascent private investment is underway, the Finance Minister said they still seem to require support to rise to their potential and to the needs of the economy. “Public investment must continue to take the lead and pump-prime the private investment and demand in 2022-23,” she said.

The Centre’s own spending on the capital account, is being raised to ₹7.50 lakh crore from the coming year, which Ms. Sitharaman emphasised is over 2.2 times the outlay in 2019-20. Budget 2021-22 had allocated ₹5.54 lakh crore for capex, which has been raised to nearly ₹6.03 lakh crore in revised estimates.

“The sharp increase in capital expenditure, particularly focused on infrastructure, and efforts to enhance digital connectivity to all villages, is much needed,” said Fifteenth Finance Commission Chairperson N.K. Singh.

However, he was a bit disappointed that the Bharatnet project to connect all villages will now be ready by 2025 as indicated by the Budget speech. “They should have taken some measures to accelerate this,” he noted.

“The Union Budget for 2022-2023 underscores the Indian Government’s previous emphasis on capital expenditure to sustain the near-term recovery from the pandemic, while simultaneously paving the way for longer-term restructuring of the economy,” said Christian de Guzman, senior vice-president, Sovereign Risk Group, Moody’s Investors Service.  

While the intent to revive the investment cycle is notable, the speed of implementation of public spending projects remains a source of concern. In 2021-22, by December, for instance, several central public sector enterprises as well as line ministries in charge of capital spending were struggling to meet this year’s targets.