NEW DELHI: The Centre is unlikely to go for a big increase in its capital expenditure target for the next fiscal year. “It will certainly not be lower than the current year’s Rs 11.11 lakh crore, but how much increase is a debatable point,” an official said, adding that the effort would be to either keep it at the same level or increase it “reasonably” rather than going for another 17% annual hike next year too A final decision would be taken closer to the Union Budget in February.
It is almost certain now that the current year’s target will be missed. With government departments already overstretched due to loss of time during the general elections and a massive increase in public investment after the pandemic, the Centre is likely to achieve Rs 10.1-10.5-lakh-crore capex in FY25 — a shortfall of up to 9%.
Post-Covid, the Centre’s capex has grown by an average of 30% between FY22 and FY24 as the government adopted a capex-led growth strategy, taking such productive spending to a desirable 3% of GDP for the first time in FY24. It had set a target of Rs 11.11 lakh crore, a 17% rise over Rs 9.5 lakh crore achieved in FY24.
The finance ministry concluded pre-Budget consultations with various ministries and departments last month to finalise Budget estimates for the next financial year. The Budget for FY26 is expected to be presented on February 1 next year.
With the GDP slowdown, there are concerns about its impact on tax revenues even as the government aims to bring down the fiscal deficit to below 4.5% as per the medium-term consolidation roadmap. The GDP rose by 5.4% in July-September year-on-year, the lowest in seven quarters, triggering alarm bells in the government.
Given that capex as 3% of GDP is considered healthy in the long run, the government’s effort would be to hold on to the ratio to maintain improvement in quality of spending and support economic growth revival in the absence of strong private sector capex push, another official said.
The Centre’s capex is driven by 4-5 big heads, including railways, highways and defence, with an increased focus on domestic manufacturing and capex loans to states to spread out public investments across the country.
The government further pared the fiscal deficit target to 4.9% of GDP for FY25 in the full Budget presented in July from 5.1% projected in the interim Budget in February as it used Rs 1.3-trillion extra dividends from the Reserve Bank of India (RBI) to trim borrowings. The fiscal deficit had touched a record high of 9.2% in Covid-hit FY21, triggering a fiscal consolidation path.
Source: The Financial Express
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