Even as the Centre is ostensibly trying to turn the investment cycle around by stepping up its capital expenditure, indications are that such spending, after an acceleration witnessed in the initial months of this fiscal, may have slowed down.
The Plan capital spending was just Rs 981 crore in August this year compared with Rs 20,580 crore in July and Rs 10,066 crore in August last year, according to Controller General of Accounts (CGA) data. Yet, in the April-August period, such expenditure was Rs 52,612 crore, an impressive 38% higher than the year-ago period (the budgeted growth rate was a tad higher at 41%).
Of course, capital spending could vary steeply from month to month as actual disbursal is project-linked.
Nevertheless, the very sharp decline in the spending in August showed brakes have indeed been applied on productive (discretionary) spending given the concerns on the revenue front. Revenue secretary Hasmukh Adhia recently said that given a likely shortfall of 5-7% in direct taxes, the gross tax revenue in FY16 could turn out to be Rs 14 lakh crore or thereabouts, compared with the budgeted figure of R14.49 lakh crore. Disinvestment targets also look high.
Even in case of non-Plan capital expenditure, a slowing down of the pace is hard to miss. Expenditure under this head — mainly used for defence equipment purchases and so having marginal ability to kindle the investment cycle — in April-August this year stood at Rs 39,326 crore, almost at the same level as in the corresponding period in the previous year. Non-Plan capital spending stood at Rs 4,931 crore in August, lower than the Rs 6,837 crore spent in the previous month.
Total capital spending (including the grants to states provided under the revenue account for creation of capital assets) for FY16 is pegged to be Rs 3.5 lakh crore, up from close to Rs 3.2 lakh crore last year
Official sources said Plan capital spending, which has a multiplier effect on the economic activity, may fall short of target by at least Rs 10,000 crore. Some of the departments including the railways are slow in executing projects, they said. (Of the budgetary provision of Rs 40,000 crore, the railways has spent Rs 13,829 crore or 35% in April-August as against 40% of the Budget estimate in the year ago period).
The overall government spending may also be trimmed, albeit marginally, to keep pace with the government revenue flows to avoid a situation like last year’s when the government had to cut spending by a massive Rs 1.5 lakh crore to achieve the fiscal deficit target. However, officials said capital as well as total spending in FY16 won’t see sharp reductions this year, unlike in recent years.
“There will be variations in capital spending month-wise. But, we expect capital spending growth to be over 30% in the full year,” an official said. Given the capital spending of Rs 96,135 crore in FY15, the government might spend some Rs 1.25 lakh crore this year, compared with budget estimate of Rs 1.35 lakh crore.
The Centre’s total expenditure in the first five months of this fiscal grew 8.8% to Rs 7.32 lakh crore. The spending in August was about Rs 1.31 lakh crore compared to Rs 1.7 lakh crore in the previous month. The Reserve Bank’s all-time high surplus profit transfer (of Rs 65,896 crore) to the exchequer combined with the moderation in spending helped the Centre to report a small fiscal surplus of Rs 15,808 crore in August. That was, of course, a blip.