Low capex growth likely: Centre mulls tight Budget for 2023-24 | The Financial Express

Low capex growth likely: Centre mulls tight Budget for 2023-24

Modest rise likely upon bloated FY23 revised estimate

Low capex growth likely: Centre mulls tight Budget for 2023-24
Departments are expected to submit their demands by the next week.

The Centre is unlikely to raise its Budget size substantially for the next fiscal, upon the bloated revised estimate (RE) for FY23, official sources indicated to FE.

Fiscal consolidation will assume renewed focus after the government was forced to push up spending substantially in two of the three years to FY23 to soften the blow of the pandemic and the Ukraine war, they said. At the same time, it is unlikely to be ultra-aggressive in fiscal tightening to avoid any negative impact on growth.

The fiscal deficit target for FY24 could be lowered meaningfully from the FY23 goal of 6.4% of gross domestic product, despite 2024 being a year of general elections. The government aims to contain the deficit at 4.5% by FY26, retaining the flexibility to alter annual deficit targets in between.

However, given its sustained focus on productive spending to spur economic growth, the budgetary capex could still witness a low double-digit expansion in FY24.

However, the pace of rise in capex in FY24 will be lower than the budgeted 27% for this fiscal to `7.5 trillion (including `1 trillion in long-term, interest-free loans to states for capex) due to the already high base and the limited capacity of departments to scale up such spending substantially year after year. But the tightening of growth in revenue expenditure will likely continue in FY24, despite elections in 2024, they said.

To be sure, the government is still in the process of finalising the revised estimates for FY23, upon which the FY24 Budget will be based. Departments are expected to submit their demands by the next week.

Also Read: Budget to unveil 8 more PLI schemes in private capex push

While the Budgetary spending was pegged at Rs 39.45 trillion for FY23, the revised estimate for this fiscal could exceed it by about Rs 2.2-2.7 trillion, according to analysts. The FY23 Budget calculations went haywire after the Ukraine war broke out unexpectedly, and spurt in commodity prices, especially of fertiliser, on top of the continuance of a free ration scheme, substantially inflated the government’s subsidy bill. Of course, given the surge in revenue mop-up and compression of certain revenue expenditure, the government hopes to rein the FY23 fiscal deficit within the 6.4% target.

As for FY24, government officials expect the subsidy bill to be much lower than the revised estimate for this fiscal, as the free ration scheme may be discontinued and international commodity prices, including of fertiliser, could ease further in the wake of a slowdown in global growth. This will create scope for the government to raise revenue expenditure in FY24 marginally without pressuring the finances.

“The core capital expenditure of the government has been raised steadily and significantly in recent years. Before budgeting for capex in FY24, the ability of departments to spend and their capex pattern will be taken into account. Making allocation will make sense only when the departments are in a position to spend that much,” said one of the sources. “However, the government’s focus on capex and asset creation remains strong, and there are no two opinions about it.”

In the aftermath of the pandemic, the government raised its budgetary capex by as much as 27% on year in FY21, 39% (albeit including equity infusion into Air India Assets Holding) in FY22 and 27% (budgeted) in FY23 — way above the increase in overall Budget size of the relevant years.

Given the strong external headwinds, several independent agencies have, in recent months, trimmed their growth forecasts for India for FY23. The International Monetary Fund recently slashed its FY23 growth projection for India by 60 basis points from its July forecast to 6.8%, but it retained its FY24 forecast for the country.

Of course, India’s growth rates for this fiscal and the next would still be way above the agency’s projected global economic expansion rates of 3.2% and 2.7%, respectively, for 2022 and 2023.

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