adiThe Union government has again chosen capital expenditure as a key focus area in the 2023-24 Union Budget. Finance Minister Nirmala Sitharaman Wednesday said that the Centre will continue its 50-year interest-free loans to state governments for an additional 12 months in order to aid infrastructure investment with an outlay of Rs 1.3 lakh crore. The Centre’s capital expenditure outlay will be Rs 10 lakh crore for FY24, an increase of 33 per cent year-on-year, she said.
The government, however, has fallen short of exhausting its Budget estimate for capital expenditure for this financial year. The revised estimate for 2022-23 for effective capital expenditure stands at Rs 10.53 lakh crore, which is 98.7 per cent of the Budget estimate of Rs 10.67 lakh crore. Finance Secretary TV Somanathan said the slight downward revision in capital spending estimate happened as states did not undertake capex at the rate as was expected, even as Centre exceeded its capex targets. The increase in capex is in areas such as railways, highways, which have adequate capacity to absorb higher capex, he added. “States are gearing up now…we are seeing it in the second half of this fiscal year in the capital expenditure by states. We are reasonably confident states will absorb the 1.3 lakh crore (of interest free loans) which they have been provided,” he said.
An amount of Rs 2.40 lakh crore has also been provided for the Indian Railways — the highest ever outlay, and nine times the outlay made in 2013-14, Sitharaman said. Roads and railways have been two sectors that have seen higher additional capital outlays over the last few budgets and have been central to the government’s capex push.
A sales representative of an electronics store watch live telecast of Union budget 2023 on Wednesday in Ahmedabad. (Express photo by Nirmal Harindran)
Sitharaman also said that 50 additional airports, water aerodromes and advanced landing grounds will be revived for regional air connectivity. This should offer an additional push to the regional connectivity scheme, which started with the UDAAN scheme.
The capital expenditure support for states had started in the Budget for FY21 in the wake of the Covid-19 pandemic. Amounts of Rs 11,830 crore and Rs 14,186 crore were provided to states in FY21 and FY22 as 50-year interest-free loans under the Scheme for Special Assistance to States for Capital Investment. During FY23, the allocation was raised to Rs 1.05 lakh crore to give an additional impetus to capex plans by states. Grants amounting to 1.2 per cent of GDP for capital asset creation have also been given to the state governments.
“The efficacy of the substantially enhanced allocation for the 50-year interest free capex loan for the state governments will ultimately depend on the speed with which they utilise these funds. The offtake of this loan in FY2023 has been rather back-ended so far, which may have been on account of the early, albeit eventually unfounded concerns regarding their revenue health post the end of GST compensation. Readiness of the states to step up their utilisation of the capex loan early in FY2024 would influence the pace of GDP growth in the next two quarters,” Aditi Nayar, Chief Economist, ICRA said.
The Economic Survey 2022-23, tabled in Parliament on Tuesday and authored by Chief Economic Advisor V Anantha Nageswaran, had emphasised on the importance of capital expenditure to crowd in private investment and to drive growth. The government’s thrust on capex, particularly in the infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs, has longer-term implications for growth, the survey had stated.
Nudge for Private Investments
The thrust towards capital expenditure by the government indicates a nudge to crowd in private investment. This will help drive growth – which has been slow in picking up pace and has fallen short of the desired level. Government officials maintain that there are clear signs of a revival in private investment, and that capex by states will also improve from now.
Capex-led growth, it said, will bring back animal spirits and help manage debt levels.
Capital expenditure by the Union government has increased by 63.4 per cent in the first eight months of FY23 and is crowding in private capex since the January-March quarter of 2022, it said.
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States too have seen a pickup in capital expenditure. After remaining muted for the first seven months of 2022-23, capital spending by states has seen a sharp pickup in November with 18 major states — including Gujarat, Karnataka, Jharkhand, Uttar Pradesh, Bihar and Odisha — posting a 49.7 per cent year-on-year increase at Rs 44,647 crore.
For the financial year so far till November, these 18 states have seen a rise of 5.7 per cent in their capital expenditure to Rs 2.44 lakh crore, primarily on account of the sharp pickup seen in November, according to official data.
Union Budget 2023: All you need to know
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