Economic Survey 2022: The Government Has The Capacity To Push Up Capex

The government has the fiscal capacity to ramp up capital expenditure when required, according to the Economic Survey 2021-22.

The fiscal support given to the economy as well as to the Covid-19-related health response caused the fiscal deficit and government debt to rise in 2020-21. But a strong rebound in government revenue in 2021-22 has meant that it will comfortably meet its targets for the year while maintaining the support, and ramping up capital expenditure, the survey presented a day ahead of the Union Budget said.

Revenue receipts were up over 67% year-on-year in April-November 2021, indicating a revival and the availability of fiscal space to provide additional support if necessary.

The survey, that has pegged GDP growth between 8% and 8.5% for the next fiscal, stated that the sharp increase in capital spending by the government can be seen both as a demand and supply-enhancing response, as it creates infrastructure capacity for future growth.

After the onset of the pandemic, the government's immediate response was to provide a safety net to the vulnerable sections of society and the business sector. It later pushed through a significant increase in capex on infrastructure to build back medium-term demand, the survey said.

While capex was constrained in the first two quarters of the last fiscal because of movement restrictions in containment zones, and unwillingness or inability of contractors and workers to carry out work, capital spending was pushed in the third quarter to encourage expenditure in sectors with the most positive effect on the economy, the survey said. The focus has been sustained during the current fiscal, with an increasing trend in capex during the first three quarters of 2021-22.

The Union Budget 2021-22 had enhanced the budget outlays for the more productive capital expenditure. The government budgeted for a 34.5% growth in capex over the budget estimate for 2020-21 — with an emphasis on railways, roads, urban transport, power, telecom, textiles and affordable housing amid continued focus on the National Infrastructure Pipeline, the survey stated.

The pipeline, along with the production-linked incentive schemes, are expected to collectively generate employment and boost output in the medium to long term through multiplier effects. The stimulus measures announced during the year 2021-22 have continued the emphasis on liquidity enhancement and boosting investment. In line with the agile approach, this mix can be changed again as per the requirement of the evolving situation.

Rising capital expenditure by the government on infrastructure and an uptick in the housing cycle have, in turn, been responsible for reviving the construction sector, the survey said. This has allowed the production and consumption of steel and cement to revert to pre-Covid levels.

During April-November 2021, the capital expenditure has grown 13.5% year-on-year, with focus on infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs. This increase is particularly substantial given the high annual growth in capital expenditure registered during the corresponding period of the previous year as well. In addition, the central government has also put in place several incentives to boost the capital expenditure by the states.

The railways, too, will see a very high level of capex in the next 10 years as capacity growth has to be accelerated such that by 2030 it is ahead of demand by 2030, the survey said. The capex outlay for railways for 2021-22 is Rs 2.15 lakh crore which is more than five times the 2014 level, as in.

As more projects are taken on hand and several sources of capital funding are developed, the capex will increase further in coming years and the railway system will actually emerge as an engine of national growth, the survey said.