New Delhi: At a time when capital spending by state governments has slowed, the Union government’s capital expenditure has seen a jump of over 50 per cent in the April-June quarter of the current fiscal to around Rs 1.75 lakh crore, compared to the same period in the previous year, ThePrint has learnt.
The Modi government has budgeted Rs 7.5 lakh crore for capital expenditure in 2022-23, an increase of 27 per cent from the previous fiscal. Of this, around Rs 1 lakh crore would be given to states as 50-year, interest-free loans to push them to spend on creating capital.
“We are quite satisfied with the pace of the capital expenditure in the first quarter. We have completed a quarter (25 per cent) of the target in the first quarter (April-June) itself. The pace of capital expenditure has been quite strong,” a top government official told ThePrint on condition of anonymity.
The Union government’s push on capital spending comes amid rising retail inflation (at 7.01 per cent in June) and increasing global interest rates, which have pushed the Reserve Bank of India (RBI) to raise interest rates in order to suppress demand.
“Government capex, particularly by the states, would remain crucial to support private capex recovery, which remains nascent at this juncture,” Aditi Nayar, chief economist at credit ratings agency ICRA, said in a report released earlier this week.
Data with the Controller General of Accounts shows that the ministries of road transport and highways, railways, and defence have witnessed healthy growth in capital spending in April-May.
Capital expenditure by the Ministry of Road Transport and Highways nearly doubled to Rs 40,361 crore in April-May from Rs 22,590 crore in the same period in the previous year. Similarly, spending by the Ministry of Railways is up 68 per cent, while spending on defence services is up by 50 per cent, according to data from the Controller General of Accounts .
When compared with pre-Covid levels in the first two months of the fiscal year 2019-20, while capital spending by the ministries of railways as well as road transport and highways was significantly higher in April-May, for defence services, there was a sharp decline of 29 per cent.
States’ capital spending tepid in April-May
The government official quoted earlier said that while states’ capital spending has slowed in the first quarter when compared to the previous year, the Centre will ensure that states have enough funds by the way of transfers to spend on infrastructure projects.
He further said that out of the Rs 1 lakh crore that has been kept aside for states in the current fiscal as interest-free loans, a large portion has been approved based on the projects that states have shown interest in.
“States will have enough funds this year despite no GST compensation to the states beyond June 2022. The disbursement of the interest-free loans will begin soon,” he added.
According to the ICRA report, the aggregate capital spending of 23 states declined by 10.3 per cent in the first two months of the current fiscal when compared to last year, while also remaining lower than what was seen in the pre-Covid period.
The report said that this contraction may be related to the changes in the net borrowing ceiling (NBC) set for state governments for 2022-23, which resulted in a delay in several states getting the Centre’s consent for borrowing for the current fiscal. Accordingly, several states did not participate in the weekly auctions of state development loans until late May 2022.
Through a notification in April, the Centre has mandated that off-budget borrowings by states or borrowings by state-run entities, special purpose vehicles (SPVs) and equivalent instruments, where the principal and interest amounts have to be serviced from state budgets, will be considered part of state debt.
According to data with the Comptroller and Auditor General of India, the combined capital outlay of 26 states is budgeted to expand by 36 per cent to Rs 6.8 lakh crore in 2022-23 from last year, when the capex stood at Rs 5 lakh crore. However, the ICRA report said that analysis of past years suggests that some states tend to over-budget their capex.
The majority of the budgeted capital spending by states is concentrated in three sectors — transport, irrigation and water supply, sanitation, and urban development.
This report has been revised to update the Union government’s capital spending figure.
(Edited by Gitanjali Das)