Capital expenditure by the Centre, PSEs owned by it and entities like NHAI and the Railways will likely be estimated at around Rs 10.5 lakh crore in the next financial year, up about 9% over such expenditure estimated (BE) in the current financial year, according to information gathered by FE from different sources.
Most of this extra central public capex, however, will likely be routed via Budget. The Centre via Budget may invest 18% more in FY23 than in FY22 at around Rs 6.53 lakh crore to retain its budgetary capex at 2.5% of GDP as in FY22 (assuming 12.5% nominal GDP growth for next year over the advance estimate for the current year).
In the Budget estimate (BE) for FY22, the government gave a thrust capital expenditure and increased its share in total expenditure to 15.9% from 12% in FY21. With this, Centre’s budgetary capital expenditure against GDP increased from 2.15% in FY21 to 2.5% in FY22BE.
Of course, the Centre has to accelerate spending in Q4FY22 to actually achieve that level of capex, as growth was just 14% on year till November, against a required rate of 30% to achieve annual target.
The Centre is keen to retain the Budget capex target at 2.5% of GDP in the next financial year to give a boost to investment-led economic growth revival amid continued uncertainties due to Covid-19 pandemic.
Gross fixed capital formation (GFCF) is seen growing 14.9% in FY22 compared with FY21 and up just 2.6% over the pre-pandemic year of FY20, according to the first advance estimates of national income released by the National Statistical Office (NSO) on January 7.
Capex (excluding budget support) by CPSEs including departmental arms such as the NHAI and the Railways from own resources, will likely remain flat at around Rs 4 lakh crore in FY23. Thanks to constant monitoring and prodding by the finance ministry, the CPSEs have retained their annual capex despite Covid-19 obstacles.
The Indian Railways, which is investing heavily in laying of new lines, doubling of tracks, augmenting traffic facilities, may likely set a capex target of around Rs 2.5 lakh crore (excluding Dedicated Freight Corridor Corporation) in FY23, up about 28% on year. Bulk of this or 60% of this may be funded from Budget. Similarly, NHAI, the second-largest investor among state-run agencies, may invest about 35% more on year in FY23 at around Rs 1.65 lakh crore. CPSEs, with annual capex outlay of over Rs 500 crore, are likely to invest about Rs 2.5 lakh crore in FY23, down 7% on year.
The moderation in the CPSE capex was anticipated given their continued investment to expand capacity despite economic slowdown in the recent years to support economic activity.
The Centre will likely fully discontinue funding of projects and schemes through extra budgetary resources or EBR (off Budget) in FY23 as it is cleaning balance sheet following criticism from the Comptroller and Auditor General and the Fifteenth Finance Commission. The Centre cleared arrears of about Rs 3.15 lakh crore towards food and fertiliser subsidies in FY21, most of which were loans from the National Small Savings Fund to the Food Corporation of India. Such off-budget funding was estimated (BE) Rs 30,000 crore in FY22, which government might not avail given buoyancy in tax revenues.
If public sector fixed capital formation has held up in recent years even amid a worrisome, prolonged decline in private investments, the contribution of state governments have been vital; states’ capex is also seen to have a higher growth multiplier potential than Central Budget/CPSE capex.