Thrust on Capital Expenditure

 

 

Context:

 

  • Union Finance Minister Nirmala Sitharaman announced a 35 per cent increase in the outlay for capital expenditure in Financial Year 2022-23 in her Union Budget 2022 speech on February 2, 2022. 
  • The capital expenditure will be increased from Rs 5.5 lakh crore in Budget 2021-22 to Rs 7.5 lakh crore in Union Budget 2022-23.

 

Capital Expenditure

 

  • Capital expenditure is the amount spent by the government on the development of infrastructure, facilities, equipment etc.
  • It also includes the expenditure incurred on acquiring fixed assets such as land and investment by the government, which will give profits or dividends in the future.
  • The major hike in capital expenditure will provide a major boost to the economy and lead to job creation.
  • The Finance Minister said that the virtuous cycle of investment is expected to revive on the back of capital expenditure and crowd in private investment.
  • Finance Minister Nirmala Sitharaman also proposed to issue sovereign green bonds to mobilise resources as part of the Government’s borrowing programme.

 

What is the intension?

  • The intent and commitment behind this strategy is clear and laudable.
  • The expectation is that sustained investment in roads, railways, freight corridors, power, renewable energy along with initiatives such as Production-Linked Incentives (PLI) and other enabling legislation, will create the conditions for drawing in private sector investments into manufacturing, and foster job creation and sustainable growth.

 

Challenges Ahead:
  • First, not all the headline capital expenditure is indicative of fresh greenfield investments.
  • The ₹0.5 lakh crore of clean-up of Air India’s books this year counts as capital expenditure. Similarly, for FY23, the government has set aside ₹0.8 lakh crore to partly clean up the books of NHAI and BSNL.
  • Nevertheless, the transparency this brings about is still very welcome.
  • Second, while there is a visible thrust on hard capital expenditure, the outlays towards critical areas such as education, healthcare and urban infrastructure remain subdued.
  • One would think investments in these areas are equally, if not more critical, than hard infrastructure alone.
  • Third, the thrust on capital expenditure has resulted in notably higher fiscal deficit numbers than expected.
  • Notwithstanding the intent and commitment, such high fiscal deficits can put pressure on interest rates and the Reserve Bank of India, even as it raises the risk of inflation, higher current account deficits, and the attendant threats to financial stability.
  • Ultimately, the key lies in execution. The Finance Minister has provided ample funds for the infrastructure thrust.
  • It is up to the entire administration – Central, State, and local – to ensure that the funds are utilised in a timely fashion, and result in delivery of world-class infrastructure.
  • Alongside, ease of doing investments have to be continually addressed, especially around key areas such as land acquisition, contract enforcement, and policy stability. 

Source: THE HINDU.

 

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