Double Whammy: Low capital expenditure, high revenue expenditure make economic turnaround difficult

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Published: September 12, 2019 10:50:09 AM

Economic Slowdown: Modi government's capital expenditure has registered a decline during the first four months of this fiscal, both in terms of absolute numbers as well as a percentage of the budget estimate for the year.

Capital Expenditure, Revenue Expenditure, Budget, GDP GrowthPrime Minister Narendra Modi.

GDP Growth: The Union government’s capital expenditure has slowed down during the first four months of this fiscal despite the government’s effort to boost the public investment to support a struggling economy. The Modi government’s capital expenditure has been pegged at over Rs 1 lakh crore between April-July this year, which is nearly one third of the total budget estimate of Rs 3.38 lakh crore. However, it is less both in terms of absolute numbers as well as a percentage of the budget estimate for the relevant financial year. According to the latest official data, the Union government’s capital expenditure was Rs 1.07 lakh crore in April-July this year against Rs 1.11 lakh crore spent by it during the same period last year.

The Union government was able to spend Rs 1,11,337 crore during the first four months of FY 2018-19, which was over 37% of the budget estimate for the year at Rs 3 lakh crore. However, this year, it declined to Rs 1,07,605 crore during the same period, which is just 31.8% of the total budget estimate of Rs 3,38,085 crore.

High capital expenditure is considered essential for achieving a faster economic growth as it goes into asset creation like construction of schools, hospitals, roads, ports and railways and other productive undertaken by the government. On the other hand a high revenue expenditure is considered bad for economy as it goes into payment of salary and wages, payment of subsidies etc and other operational expenditures of the government. A high revenue expenditure means that the government is spending too much to sustain itself.

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During the first four months of this fiscal when Modi government’s capital expenditure has registered a decline of almost Rs 5,000 crore, its revenue expenditure went up by over Rs 62,000 crore.

In comparison with the same period last years, the Modi government’s revenue expenditure has gone up from Rs 7.78 lakh crore to Rs 8.4 lakh crore in April July this year. An increase of Rs 62,000 crore or 8%. Although, the revenue expenditure has declined as a percentage of the total budget estimate for the year but it has increased by Rs 62,000 crore in terms of absolute numbers.

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In the first four months of FY 2018-19, the Modi government has spent Rs 7,78,387 crore in revenue expenditure which was 36.3% of the total budget estimate of Rs 21.42 lakh crore. However, it has spent Rs 8.4 lakh crore in revenue expenditure during the same period of this fiscal but it is 34.3% of the total budget estimate of Rs 24.48 lakh crore for the current financial year.

The Central government’s total expenditure in the first four months of this fiscal (April-July) has been pegged at Rs 9.47 lakh crore, which is 34% of the total budget estimate of Rs 27.86 lakh crore for FY2019-20. This is an increase of Rs 57,554 crore over the gross expenditure spent during the same period of previous financial year. In the first four months of the previous fiscal, its gross expenditure was Rs 8.99 lakh crore which was 36.4% of the budget estimate for the year.

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