The Centre will maintain its accelerated tempo in public investment as the Indian economy battles through a global slowdown to achieve higher economic growth, finance minister Arun Jaitley said on Tuesday.
“The public investment has been stepped up in the last year and it will continue to remain stepped up….when you fight a global slowdown, public investment has to lead the way,”Jaitley said at an infrastructure development seminar. In sharp contrast to the boom years, the Indian economy now is powered by government investment and private consumption.
Keeping in view the weak private investment, the government budgeted a 29% increase in capital expenditure for FY16 at Rs 2.41 lakh crore. During April-November of the current fiscal year, the Centre’s capital expenditure was Rs 1.59 lakh crore, which was 66% of budget estimate (it was 54% of the budget target in the year ago period).
With corporate balance sheets remain highly stressed and only expected to recover slowly, private investment in FY17 will not be significantly greater than in FY16, according to the finance ministry’s Mid-Year Economic Analysis report. As the country’s infrastructure does not match its growth ambitions, economists in the finance ministry said public investment may need to be preserved and even accelerated in order to fill-in for and indeed crowd-in private investment in FY17. With domestic demand tepid and exports growth rate shrunk, they revised downwards their estimate of the real economic expansion for the current fiscal to 7-7.5% from 8.1-8.5% forecast in February.
To shore up infrastructure funding, Jaitley said the National Investment and Infrastructure Fund (NIIF) with an initial corpus of Rs 40,000 crore would play a catalytic role in the financing of infrastructure projects. Several sovereign funds and pension funds from Russia, Singapore, the UK and the UAE are willing to participate in the NIIF, in which the government stake won’t exceed 49%.
“(With higher investment in infrastructure) we should be able to show much more positive result as far as Indian economy is concerned, making it a stable force which we have become even in the midst of even in a crisis like situation across the world,” the minister said.
The opportunity provided by the low crude oil prices has enabled the government to channelise a large part of savings into central areas of infrastructure, Jaitley said. With the crude oil prices at 11-year low, the government used the opportunity to raise excise duties on petrol and diesel to mop of additional resources of about Rs 10,000 crore in the current fiscal year. It would also make some savings on account of lower fuel subsidies.
As part of the strategy to boost economic activity, the Centre is pumping in more money in key infrastructure areas such as national highways, rural roads and railways. While railways are on the right track directionally, the minister said it has to expedite projects. Very shortly, the railways is going to come up with its proposed bids for development of 400 railway stations in the country.