Budget 2019 India: An analysis shows that the IEBR portion of the total capital expenditure of the ministries associated with investment in infrastructure has shot up over the past few years.
Union Budget 2019 India: While the government stressed upon importance of higher investment to spur the economy, it has not increased the allocation for capital expenditure—Rs 3.4 lakh crore or 7% higher than FY19 (RE)—as it had little scope to do so, given committed revenue expenditure and high fiscal deficit. It has retained its estimates of capital expenditure made in the Interim Budget.
The overall capital expenditure of the central government and central public sector undertakings is lower than last year. Over the years, the share of government’s capital expenditure has been declining, with several of the public sector undertakings funding capital expenditure through internal accruals and market borrowings or internal and extrabudgetary resources (IEBR). The off-balance sheet borrowings of the government have been growing over the years.
An analysis shows that the IEBR portion of the total capital expenditure of the ministries associated with investment in infrastructure has shot up over the past few years. However, internal accruals have not picked up, which means that several quasi-government entities such as the NHAI and the Indian Railways have to borrow money from the market. This trend, in fact, has led to high levels of market borrowings of government and quasi-government entities, despite the Centre reducing its capital expenditure and fiscal deficit.
The high consolidated fiscal deficit of around 6.1% (including states) will have a limited impact on RBI’s accommodative monetary policy with market interest rates staying high despite 75 basis points rate cut this calendar year. Also, high government and quasi-government market borrowing through government bonds, PSE bonds and small saving scheme funds will results in crowding out of the private sector and stymie private investment rate.
Data from CMIE show that investments in new projects plunged to a 15-year low in the three months to June this year, indicating a grim picture of an investment-starved economy. Investment in private sector projects fell 89% in the quarter as compared to last year.
Interestingly, the government has increased allocation to various social welfare schemes to Rs 4.3 lakh crore, which is 22% higher than Rs 3.5 lakh crore in FY2019 (RE). It kept the outlay for the PM-KISAN (farm income support) scheme at Rs 75,000 crore, same as in the Interim Budget.