Government capital expenditure: too little, too late

India’s planned capital expenditure as a percentage of total budgetary expenditure has risen to its highest level in nine years at 6.5%, according to the revised estimate for the current fiscal year. Plan capital expenditure is used for building infrastructure assets such as road, bridges, railways, highways, while non-plan capital expenditure is mainly on defence.

The government seems to have woken up from its long slumber and is trying to start the investment cycle. Note, however, that Plan capital expenditure as percentage of total expenditure was 9-10% when the National Democratic Alliance (NDA) was in power. So, even at 6.5%, the number is far lower than what it was in early 2000.

“Salaries of government employees have increased significantly due to the sixth pay commission, higher deficit has led to increase in the interest burden, subsidies have also gone up and therefore fixed expenditure or capital expenditure which is discretionary has been coming down gradually over time,” said Samiran Chakraborty, head of regional research (South Asia) of Standard Chartered Bank. But the government had neglected capital expenditure even during the boom years (see chart).

Devendra Kumar Pant, an economist from India Ratings and Research Pvt. Ltd, points to another problem. He said that expenditure is going into building assets, but it is not giving any returns. The projects have started but are not completed on time because clearances and linkages are not in place. The cabinet committee on investments cleared mega projects in the last few months in excess of 4% of gross domestic product (GDP), but the results will be visible only in the next fiscal year.

  PRASHANT SHARMA 

PGDM-I

Source-MINT