Though budgetary capital expenditure by the Centre declined steeply in the current financial year, some big-spending ministries — especially urban development, rural development and health — have held afloat. In April-November FY17, the Union government’s capex routed through the Budget fell 13% year-on-year. Put differently, in the first eight months of this fiscal year, Budget capex (Plan and non-Plan) was Rs 1.42 lakh crore or 58% of the full-year target of Rs 2.47 lakh crore, compared with Rs 1.59 lakh crore or 66% respective target of Rs 2.41 lakh crore of FY16.This signals that the decline in this productive-category spending could be even steeper than budgeted. Budget capex, it may be noted, is projected to decline to 1.64% of GDP in the current fiscal from a four-year high of 1.75% last year.
However, this is part of a strategy to boost public capex via non-budgetary sources: PSU spending and infrastructure investment channelled through the likes of the National Highways Authority of India and the railways. NHAI, the railways and some port trusts have augmented borrowings in recent years.
And budgetary revenue expenditure is going pretty strong too: It was up around 14% in April-November, thanks partly to the increase in salaries to government staff. Government final consumption expenditure (GFCE) was a significant growth driver in the first half of this financial year, partly offsetting the decline in private investments.
GFCE grew 18.8% in Q1FY17 and 15.2% in Q2FY17 from the year-ago periods. In fact, GFCE’s share in GDP increased a massive 2.2 percentage points to 13% between Q1FY16 and Q2FY17.
Among individual ministries, the urban development department, which is steering the Centre’s flagship smart city mission, spent 90% of the Plan allocation (with a relatively large capex component than the non-Plan category) of R21,100 crore in the first eight months of the fiscal. This was despite a 31% rise in Plan expenditure budgeted for the ministry in FY17.
Rural development, the top spender among all ministries except defence, spent 78% of the Plan outlay in then first eight months (the budgeted increase for the full year is 20%).
The ministry of human resource development saw was only a marginal (3%) increase in Plan allocation this year, but its spending size is substantial and 76% of the annual target was achieved in the first eight months.
The health ministry was allocated Plan funds a fifth more than a last year and by the end of November spent 61%.
Morgan Stanley Research wrote: “We expect capital expenditure growth to increase in FY18 following expectations of a decline in FY17.
However, the pick-up in capital expenditure growth is likely to be in line with nominal GDP growth — implying that the ratio of capital spending to GDP remains steady.
We believe that the government will find it challenging to increase this ratio in FY18, since revenue expenditure drains remain high.”
Prasanta Sahu & Dibyajyoti Bhattacharjee