Economic slowdown: Govt fast-tracks public spending, asks PSUs, ministries to pitch in

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New Delhi | Published: September 7, 2019 6:27:46 AM

The government has devised a multi-pronged approach for providing a boost to the economy.

India growth, India growth RATE, India gdp growth, India gdp growth rate 2019, india economic growth, economic slowdown, india economic , The Centre’s expenditure in Q1FY20 was 25.9% of the budget estimate (BE) for the full financial year, lower than trend of around 30% in recent years.

As private corporates and households falter on their spending plans, the government has taken upon itself the task of giving the much-needed boost to the economy, by fast-tracking public spending, particularly capex.

While July 2019 saw a 24% year-on-year increase in budget expenditure compared to 15.5% in the corresponding month last year in a sign that the Centre has already quickened spending after a rather torpid Q1 expenditure compared to recent years, the finance ministry on Friday urged key infrastructure ministries and other major public spenders such as Maharatna and Navratna CPSEs to loosen up their purse strings.

The finance ministry said in a statement, “In order to boost capital expenditure of the government so as to pump liquidity in the market to boost demand, the ministry of finance held meeting with the heads of Maharatna and Navratna CPSEs and financial advisors of infrastructure ministries.” According to sources, the Centre’s budget capex is estimated to rise about 10% year-on-year to `3.36 lakh crore in FY20 compared to `3.03 lakh crore in FY19 while the CPSEs would invest about `4.5 lakh crore, up 3.2% y-o-y.

In addition, 17 states have estimated to invest about `5.74 lakh crore, a 36% increase over the previous year, an FE analysis revealed. Though states tend to cut capex to cater for higher revenue expenditure, the relatively better fiscal status of some states in 2018-19 is expected to spur overall public investment in the current fiscal.

The Centre’s expenditure in Q1FY20 was 25.9% of the budget estimate (BE) for the full financial year, lower than trend of around 30% in recent years. Its spending improved to 34% of BE during April-July, but this was still lower in relation to the relevant BE (36.4%) in the same period last year.

The capex by CPSEs have also been a bit subdued so far this year. For the year as a whole, CPSEs were earlier estimated to spend only `4.5 lakh crore in FY20 against `4.36 lakh crore in FY19. These entities had registered a sharper increase in capex in FY19 over the previous year.

An additional `58,000 crore given by the RBI as surplus transfer will make the Centre’s efforts to augment spending a bit easier.

“This was an effort to improve the market sentiment and PSUs and ministries were asked go full throttle on their capex plans,” a senior CPSE executive, who attended Friday’s meeting, told FE.

The finance ministry also asked the representatives of CPSEs and departments to monitor release of payments for procurement and other contracts to avoid delays. The idea is to infuse liquidity in a time-bound manner in corporate India as well as to take steps for resolution of outstanding payments held up on account of disputes. It is estimated that CPSEs and government departments owe `60,000 crore to various companies, including MSMEs, hurting their ability to sustain business cycles.

The government has devised a multi-pronged approach for providing a boost to the economy. Improving credit flows is critical to this, as the fiscally onerous stimulus is not reckoned to be the right approach. Merger of some public-sector banks and upfront capital infusion of `70,000 crore were announced recently and the RBI asked banks to link their floating loan interest rates to external benchmarks like the repo rate to quicken transmission of monetary easing. “It is hoped that the enhanced credit flows will spur investment cycle and help revive stressed sectors like housing,” the finance ministry added.

Official data showed last week that India’s real gross domestic product growth slumped to a 25-quarter low of 5% in Q1FY20, amplifying fears of a prolonged economic slowdown.
Friday’s meeting was co-chaired by economic affairs secretary Atanu Chakraborty and expenditure secretary GC Murmu.

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