Impel the spending: FM to setup CAPEX

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The Centre is likely to increase the pace of productive spending, a key growth enabler, across various departments, after capital expenditure fell in three of the five months through July compared to the same period last year.

Various infrastructure ministries and departments have previously been ordered by the finance ministry to increase expenditures and establish long-term assets.

Finance Ministry officials have offered to help other departments handle important issues that could impede key projects in some sessions, an official told FE. It wasn’t easy because of the second round of Covid, but it’ll get better in the coming months. It’s important to note that the minister is on the case,” he said.

Such budgeted expenditures have declined since the FY22 Budget was presented when the Union government pushed for public CAPEX in order to counteract a Covid-induced growth slowdown.

A favourable base and reasonable spending during April and June helped boost budget capex in the first four months of the current fiscal year, but the growth is just half of the yearly objective of 30 percent.

The Centre must now increase capital expenditure by 36 percent in the remaining months of the current fiscal in order to meet the planned objective of Rs 5.54 lakh crore, and that too on a rather adverse basis (especially between October 2021 and February 2022). This compares to a year ago when there was a nationwide lockout for much of the first four months when CAPEX made up 27 percent of the full-year objective.

Only road transport and highways had less than 33 percent of their full-year budget in the first four months. Only 2 percent of the FY22 budget was spent on capital expenditures in the telecom and electricity departments as of July. Railways accounted for 26 percent of the budget, followed by housing and urban affairs at 25 percent of the budget. Financing ministers have asked important departments to front-load their capital expenditures (CAPEX).

There is one bright lining: The Centre’s fiscal deficit in the first four months of the current fiscal year amounted to only 21.3 percent of the full-year budget forecast. Center can now increase capital expenditures in FY22 without jeopardising its deficit target.

However, the person quoted above pointed out that even in the past, CAPEX growth has been intrinsically erratic over months. A more realistic picture would be obtained by analysing the data annually. Capex in this fiscal year shouldn’t bother anyone, he argued.”

Fixed investment grew by 55.3 percent in Q1FY22, increasing its proportion of the economy by over 7 percentage points to 31.6 percent, according to the GDP figures for the first quarter. Fixed investment, however, remained below the FY20 level in terms of absolute magnitude.

Even as the fiscal year winds down, Finance Minister Nirmala Sitharaman has made it clear that the government will not reduce capital expenditures from the planned level, as it has in the past.

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