Tuesday, 25 January, 2022
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With growth in mind, finance ministry asks infrastructure ministries to ramp up spending

The decision to increase infrastructure spending comes at a time when the Indian economy is forecast to contract by more than 5 per cent in 2020-21.

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New Delhi: The government is set to push spending by infrastructure ministries this year as it looks to revive economic growth and boost job creation.

The finance ministry has reached out to major infrastructure ministries like railways and roads and highways, asking them to step up spending to meet budgeted expenditures, two government officials confirmed.

The Covid-19 pandemic and the subsequent increase in expenditures and contraction in tax revenues forced the finance ministry to place expenditure curbs on many government departments. Ministries like health and family welfare, rural development, textiles and food and consumer affairs were some of the exceptions — they were allowed to spend freely as required. But infrastructure ministries like railways, housing and road transport and highways were allowed to spend only up to 40 per cent of the full year budgeted amounts in the first half of the fiscal.

However, with the pandemic, and the consequent lockdown and disruption in economic activity, leading to a sharp growth contraction in the first quarter of 2020-21, the government is keen to revive spending by infrastructure ministries.

Economists expect the Indian economy to contract between 5-12 per cent in 2020-21, but rebound in 2021-22.


Also read: Govt keeping all options open to support economic recovery, says Nirmala Sitharaman


Govt can borrow some more

Speaking at a FICCI event Thursday, Department of Economic Affairs Secretary Tarun Bajaj said the government could borrow “a little more” if needed to fund infrastructure spending.

“I have reached out to the large infrastructure spending ministries and assured them that even if I have to borrow a little more, I will do that. But you should achieve your targets for infrastructure spending this year,” Bajaj said.

The government has already announced a 50 per cent increase in its market borrowings this fiscal to Rs 12 lakh crore from the initially budgeted Rs 7.8 lakh crore.

A senior highway ministry official told ThePrint: “Instead of curbing our spending, we have been told by the finance ministry to spend more and get more investment into the sector.”

For this purpose, the highway ministry is in the process of setting up a Special Purpose Vehicle to mobilise funds for the 1,352-kilometre Delhi-Mumbai expressway project.

N.R. Bhanumurthy, vice-chancellor at Bengaluru’s Dr B.R. Ambedkar School of Economics university, said infrastructure has huge forward linkages and can be a major source of job creation.

“Widening of the fiscal deficit is not a problem if the resources raised through market borrowing or monetisation of deficit are used for investment purposes. Expenditure in infrastructure has much higher multipliers,” Bhanumurthy said, pointing out that capital expenditure and not revenue expenditure is key for economic revival.


Also read: Govt could wait for Covid vaccine before declaring steps to revive demand, says CEA Subramanian


 

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