Budget 2022-23: CAPEX led growth

Capital formation, both public and private, will provide a stepping stone for growth

The most notable feature of the budget for 2022-23 is the significant increase in capital expenditures; budget in charts

By Ashish Tiwari

Chennai: The most notable feature of the 2022-23 budget is the increase in the capital expenditure from Rs 6.01 lakh crore in 2021-22 to Rs 7.5 lakh crore. But, a closer look at the numbers makes the outlay much smaller than it’s made out to be. 

Most of the CAPEX increase is allotted to the fifty-year interest-free loan of Rs 1 lakh crore that will be allocated to the states for infrastructure development. And, whether the 1 lakh crore will be conditional or non-conditional isn’t formulated yet. As Rs 1 lakh crore out of the 1.5 lakh crore is in the form of a loan, the real increase is only Rs 0.5 lakh crore.

“Since this allocation is in a form of loan it doesn’t add to the centre’s fiscal deficit, but to the state’s deficit,” said Chief economic adviser at the Brickwork Ratings, M Govinda Rao. “We don’t know if the states will spend the whole amount and if the entire amount will go for infrastructure spending.”

The high-point in increasing capital expenditure is the interest-free loan advanced to states, and the actual increase by the central government is not substantial except in railways and road transport, said Rao. Other major sector where the outlay has been increased are Railways (Rs 30,000 crore), Roads (Rs 66,494 crore), drinking water (Rs 60,000 crore) and Rs 48,000 crore for housing schemes. 

At 19% of total expenditure, this is the largest share that the CAPEX has got in 18 years. Source: Mint

Through capital expenditure, fixed assets are acquired; existing assets are upgraded, or even loans are repaid. The government capital expenditure enhances labour participation in the economy. Also, the impact multiplier effect of ₹1 spent on capital expenditure is as high as 2.45 as against any revenue expenditure where the impact multiplier effect is 0.99. 

The government has planned to use tax revenue and GST receipts for deployment in this area. Total revenue receipts are estimated to increase by just 6% over the revised estimate of the previous year. The increase in capital expenditure has been budgeted mainly by taking lower revenue expenditures, which are estimated to grow by less than 1% over the budget estimate of the current year, said Rao. 

There’s a worry of the fiscal deficit shooting up with such a huge allocation to which Prof Ashwani Kumar, Dean of School of Development Studies, Tata Institute of Social Sciences, said: “One must also recognise that capital expenditure is discretionary and can always be held back in case the fiscal deficit numbers are too close for comfort to the budgeted levels.”

The financial statement projects a reduction of the fiscal deficit to 6.4% of the gross domestic product, much higher than the recommended deficit at 5.5% of GDP by the 15th Finance Commission. But, Nirmala Sitharaman, the Finance Minister, in her budget speech has promised to contain the deficit at 4.5% by 2025-26.

Budget in charts

The revised fiscal deficit of India is 6.9% of the GDP, against 6.8% estimated earlier for FY’22. India’s fiscal deficit for next year pegged at 6.4% of GDP and allowed the states to run a deficit of up to 4%-higher than the 15th finance commission mandate of 3%. The Centre will also give Rs 1 lakh crore as a 50-year interest-free loan to the states.

On the revenue side, the nominal GDP is projected at 11.1% for FY23, while the Economic survey pegged it at 8-8.5%. “The fiscal deficit in 2022-23 is estimated at 6.4 percent of GDP, which is consistent with the broad path of fiscal consolidation announced by me last year to reach a fiscal deficit level below 4.5 percent by 2025-26,” Ms. Sitharaman said in her budget speech.

Revised privatisation receipts stood at Rs 78,000 crore vs a target of Rs 1.75 lakh crore for this financial year. Privatisation receipts targeted even lower at Rs 65,000 crore for the coming financial year.

Cut in subsidies towards; fertilizer, from Rs 1.40 lakh crore this year to Rs 1.05 lakh crore in FY23;  food, from Rs 2.9 lakh crore to Rs 2.1 lakh crore; Petroleum, from Rs 6,517 crore to Rs 5,813 crore.

The government has slashed allocations for the rural employment scheme, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), from Rs 98,000 crore (RE) this year to Rs 73,000 crore in the next fiscal

What did not find a mention in the Finance Minister’s Budget speech today: India has reduced spending on ‘medical and public health’ from Rs 74,820 crore this year to Rs 41,011 crore in the next year due to “lower requirement of vaccination.”

The healthcare sector in India came in for deep disappointment as the total budget allocated for it is only Rs 86,200 crore in the Union Budget 2022-23, just 0.2 % higher than the revised Budget in 2021-22.

Cooperative and Corporate get tax deductions. Finance minister Nirmala Sitharaman brought the minimum alternate tax (MAT) down for co-operative societies to 15%. The move will bring in a level-playing field between co-operative societies and private companies, which are taxed at 15%.

The finance minister said the government has also proposed to reduce the surcharge on cooperative societies from the present 12 percent to 7 percent for those having a total income of more than Rs 1 crore up to Rs 10 crore.