Government will not withhold revenue spending for infrastructure services

Even though the government has maintained a cap on revenue spending, it does not plan to withhold such spending for key ministries in the second half of this fiscal year.

Official sources have indicated that while capital expenditures remain at the center of government concerns due to their high multiplier effect, even revenue expenditures in infrastructure departments that facilitate asset creation and help stimulate growth economic growth will not be hindered. The Ministry of Finance will hold consultations with various ministries starting Monday to firm up the revised budget estimates for FY23.

“Certain types of income spending act as catalysts for the formation of long-lasting assets, so it is important to continue spending in these areas,” one of the sources said. As FE reported, the government will put greater emphasis on the prudent use of funds by departments to ensure that a slowdown in growth expected in the second half of this fiscal year is not further hampered by excessive fiscal greed.

Sources said that some infrastructure ministries/departments that have not spent much so far this fiscal year are being pressured to improve their level of spending. For example, between April and August, the Ministry of Civil Aviation only spent 4% of its revenue and capital expenditure target for the full year. The telecommunications department spent just 2% of its full-year capital investment target in the first five months of this fiscal year and its revenue spend was 33% of target. The Ministry of Urban Affairs’ revenue and capital expenditures were only 14 percent and 25 percent, respectively, of FY23 targets.

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While Ministry of Roads, Transport and Highways tax expenditure was 50% of target for the full year through August, it was below 56% (of relevant target) a year ago. Likewise, its capital spending of 58% of FY23 target was lower than 67% a year earlier. The Department of Transportation’s revenue spending was just 37% of the FY23 target, while its capital spending was even lower at 27%.

The Center’s revenue expenditure contracted in each of the three months through August, the latest official data showed. After decent spending in the first two months, revenue spending fell 0.3% in June from a year earlier, 12.4% in July and 4% in August. In the first five months of this fiscal year, revenue spending fell 3%, despite decent spending in April and May. By contrast, capital spending jumped nearly 47% in the first five months, partly on a favorable base, although capital spending in August was up just 0.5%.

The Ministry of Finance has made it clear to all departments that budgetary funds for capital expenditures will not be limited. The Center has set its investment target at 7.5 trillion rupees for FY23, which includes interest-free loans of 1 trillion rupees to states for these expenditures.

The World Bank cut its FY23 growth forecast for India to just 6.5% from 7.5% forecast in June. On Friday, chief economic adviser V Anantha Nageswaran said India may have to live with growth below 7% in the near term. It is therefore crucial not to falter on spending in the second half of this financial year when growth is expected to slow, given the external headwinds and the scenario of interest rate tightening.

The government had planned budgetary expenditure of 31.95 trillion rupees for FY23, down 0.2% from the previous year. Its budget investment of Rs 7.5 trillion for FY23 marks a 26.5% increase over the previous year. Of course, the expenditure and revenue catch-up targets are about to be exceeded.

Sallie R. Loera