Monday's interim budget only compounded the worries over government’s capital spending being the casualty as it tries hard to control the fiscal deficit, while revenue buoyancy remains elusive.
Even historically, India's government capital expenditure has been below par, as budgets have been burdened with routine expenses such as pension, interest payments and poorly targeted subsidies.
The trend in cutting capital spend is worrying as capital expenditure is essentially money that goes towards creation of productive assets through schemes and programmes sponsored by the central government. In FY14, the government cut over R38,000 crore from total capital spending (from the amount initially budgeted), which could hamper growth. In FY13, the government had cut capital spending by over Rs 37,000 crore. Revenue spending for FY14 was cut by about Rs 36,000 crore and R45,000 crore was saved from the budgeted revenue expenditure for FY13. Finance minister P Chidambaram reckoned that the total spending cuts were just 5% of the total expenditure and won't hurt growth.
Chidambaram said that the government's strategy of putting fiscal deficit as a top priority had worked and the ratings agency no longer talked about a downgrade.
In FY13, the government had cut total spending by close to Rs 1 lakh crore. Analysts are of the view that the government had no other option and the axe had to fall on spending even at the cost of growth as the oil subsidy bill had to be revised upwards by Rs 20,000 crore to Rs 85,551 crore.
The oil subsidy was revised as the government could not completely reform petroleum product pricing. This also pushed the total subsidy bill for this year to Rs 2.55 lakh crore from Rs 2.31 lakh crore budgeted. The estimate for next year is close to this year's revised estimate at R2.56 lakh crore. In trying to make the deficit numbers look better, the government also delayed the payment of major subsidies by over 1 lakh crore. During the budget speech, Chidambaram said R35,000 crore of fuel subsidy payment has been rolled over to next year.
According to official sources, the government